If you were born after 1980 then you will be considered as a member of the millennial generation or more commonly known as the generation Y. It is considered a generation of click-happy and tech-savvy people, who believe in living in the moment.
The millennial generation also has some other not-so-flattering nicknames. They have been dubbed the Peter Pan generation, which refers to a perceived immaturity or unwillingness to grow up which is exhibited in millennials’ tendency to delay starting a career, getting married and having children. Given their proclivity towards living for today, many millennials are divorced from the concept of savings.
However, for long term health and well-being, it is imperative that millennials learn to balance their consumption with their savings.
Given below are five essential money skills that millennials should strive to adopt.
Make savings a habit – millennials tend to treat savings with flippancy and are as such not geared towards savings. However difficult it might be, you must strive to save a portion of your income. Money does not grow on its own. It needs to be put aside or saved and invested in an asset class for it to grow and yield returns. Create a financial goal and educate yourself about the different investment avenues that are available and are likely to meet both your short term as well as long term needs. There are various investment avenues offered by mutual funds which can help sync your goals and risk/return requirements with the relevant asset.
Automate your savings – for a generation that is so steeped in consumption, saving on a regular basis can seem like a tall order. Sometimes it is best to remove the subjective element from the savings decision and instead automate it. One of the best ways of doing this is to start investing through a systematic investment plan (SIP). An SIP is an investment vehicle, where an investor makes fixed, regular payments into a mutual fund, to endeavor reap the benefits of long-term investing. It helps you gain exposure to your selected asset class through the investment of a small or large amount of money, at fixed intervals and in a disciplined manner. In this way, you do not have to make the added effort of transferring money to an investment account on a monthly basis. By setting up an SIP, this process happens automatically.
Start early – start saving from your first paycheque itself. Don’t wait for a crisis or an emergent need to execute your savings plan. You may consider to consult a financial advisor who will help you draw up a financial plan and suggest assets that you can invest in, to meet your goals. It is important to understand that today’s savings and spending can have a material impact on your tomorrow.
Live within your means – admittedly this is much easier said than done. However, one of the most important choices you make once you start earning is to live within your means. What this essentially translates into is to never spend more than you earn. Unfortunately, we all fall into this trap, sooner or later. The key is to be cognizant of your income and accordingly match it with your monthly expenses.
Create a financial safety net – the importance of creating a financial safety net cannot be overemphasized. While most of us are able to budget and match our monthly expenses with our incomes, it becomes almost impossible to meet sudden cash flow requirements without the existence of a safety net. Building an emergency fund is one of the primary steps that can be taken to reduce the financial vulnerability and enhance safety. An emergency fund can help cope with unforeseen or unfortunate events such as critical illnesses and permanent loss of income by reducing financial stress that comes with them. While bank deposits and keeping cash at home are the traditional ways of savings, millennials today can opt for many other investment vehicles. A portion of the funds can be invested in liquid or short-term mutual funds which have the potential to invest , at relatively lower risk. These funds also maintain a high amount of liquidity so as to be available to an investor in the time of need.