Investment Ideas: 5 Money Rules Millennials Should Follow

Millennials are the unconventional lot, who believe in following their passions. They believe in experiences and generally end up spending a lot on their travel, hobbies, etc. They are aspirational, with 24x7 internet connectivity, live on credit cards, and wear best of international brands. Savings and investments are not on their priority list. Their financial planning behaviour is also very different from older generations. They prefer to save for short-term smaller goals, like a trip to their next overseas destination or buying the latest Apple MacBook. Savings for purchasing a house or for retirement planning are among the last on their lists. But they would do well to follow some age-old rules.

Spend less than you make: Take a detailed look at your expenses and honestly ask yourself which of these can be cut down without making too many changes to your lifestyle. An expense tracker app will go a long way in helping you identify your spending patterns and eventually correct them. Set goals on your expenses and save more without actually making more money.

Follow the 50-30-20 rule of thumb. Spend 50% on necessities (rent, food, transport, education), another 30% on things you want or enjoy (discretionary expenses) and save the remaining 20%.

Start investing early: The sooner you start, the earlier you’ll reach your savings goals. Give your money time to grow, and you will reach your goals faster. One can’t (and shouldn’t) wait for the perfect time to invest. The power of compounding makes an amount that seems small now, become big over time.

It is okay to start small. You can always rack it up, as time passes by. It is also advisable to do this regularly.

Have an emergency fund: You must have at least four months’ worth of living expenses stowed away in an accessible bank account or liquid/instant redemption funds. This is your emergency fund available for withdrawal immediately. Be mindful that you use it only in times of real emergencies, like medical or loss of a job.

Invest only after setting up this emergency fund.

Settle your debts: Do you know what happens when you borrow money to buy something, you spend today with tomorrow’s income (at a high cost). Sadly, the high interest rates on your credit card just can’t be made up by your investments. Borrowing at such high rates leaves you much poorer. Settle your debts first. If you have low-interest-rate loans, consider investing in a debt mutual fund where the interest you earn exceeds the interest you pay. That’s smart money in your pocket.

Set goals and save for them: Set short- and mid-term goals, like your next exotic holiday, and save for that. The advantage of this practice is that it makes one a more disciplined investor.

An important milestone for you should be your retirement. The key to a successful retirement is to start early. The earlier you start saving, the more you’ll have when you retire.