Millennials can invest in Equity & MFs with these tips
Most millennials aspire for goals like foreign vacations, higher education for children, buying a house and early retirement.
A desire to afford a comfortable lifestyle and clarity on long-term life goals are driving millennials in India to put in all the hard work required to realise their dreams.
Born between the early 1980s and 1990s, millennials comprise the major chunk of working population in India today and are making significant contributions towards our economic growth. They are conscious of the need to plan their finances smartly in order to fulfil all their aspirations.
They are confident and bold when it comes to making decisions about finances and are willing to take risk for achieving their goals. Even from financial education perspective, they have shown high awareness about various financial asset classes that are available for making prudent investments. While millennials are certain about charting a path towards financial security, they do require some assistance to put their plans into action.
Most millennials aspire for goals like foreign vacations, higher education for children, buying a house and early retirement. Achieving these milestones require focused financial planning and smart investments choices. However, the need for instant gratification that this generation has acquired, often delays the process of saving and investment for the bigger, long-term goals.
In many cases, this tendency of millennials to live their dreams now leads to incurring debts early on in the form of credit card and loan installments. A study conducted on propensity of this generation to make big-tickets transactions on credit indicated that 68 per cent of the affluent millennials had at least one credit card and 52 per cent had a personal loan. Managing installment payments in many cases becomes quite challenging, given the high interest rate charged on such transactions.This could also derail this generation from working towards building a healthy retirement fund. To ensure that they stay on course of their financial journey, millennials can embrace a few simple financial habits for a secured future.
Keep track of your income and expenses
The first habit to build a secured financial future is to keep a track of where your money is going. This does not mean that you must deprive yourself of dinners with family or movies with friends. Maintaining an account of daily expenses is just a way to identify which spends are unnecessary and can be avoided or minimized.
To control your expenses, make a practice of compulsorily diverting a certain portion of your salary to savings as soon as you receive your paycheck. Less disposable income in hand would mean less expenditure, provided you make no major transactions on credit.
Monitoring your expenses will help you to make optimal utilisation of your existing funds. Certain expenses, such as rent, electricity bills and loan installments, are recurring in nature and hence, unavoidable.
Paying off all such necessary expenses at the beginning of the month will give you funds, which then can be utilised for discretionary spends, say monthly entertainment. Try to cap or allot a fixed amount of your income for discretionary expenditure.
To make this process of monitoring your expenses simpler, you can download one of the several apps available for tracking daily expenditure.
As Warren Buffet said, “Do not save what is left after spending, but spend what is left after savings.” Though there is no specific rule for savings, it is wise to save as much as you can and invest the same in instruments that will make the money you save work for you. Be regular with your savings.
Make it a habit to save a certain sum of money every month as soon as you receive your paycheck and gradually increase this amount. It would be advisable to directly use your savings for investments or direct your savings in a recurring deposit which will lock in your money for a certain time frame and give you higher interest than the savings account.
Be mindful of your credit spends
Credit cards have made it possible to indulge in an expensive transactions even if you do not have sufficient funds in your account. However attractive this may be, it is advised to limit the number of credit cards to one or two. Do remember the due dates of all the credit cards at your disposal and make the payments ahead of the due date to avoid getting into vicious circle of ballooning debt. Try to limit usage of your credit card only for big-ticket transactions
Even for home loan or education loan EMIs, understand carefully the terms and conditions of such loans from your bank. These days several attractive interest and installment options have been introduced by various banks. It is equally important to compare the interest rate structure offered by various financial institutes before taking a loan to understand which one works the best for you. Also, be aware of the tax implications of your loans. For instance, tax benefits are available on home loans. Such awareness will help you to maximize you take home pay while repaying your loan installments.
Understand your tax structure
Develop a thorough understanding of your tax structure and income tax that you pay annually as it impacts your take home package. Knowledge of various heads and benefits that you can claim will help you to minimize the impact of taxation.
You can also fashion your investment choices based on which instruments will help you to save more and pay less taxes. There are several online tools which you can use to calculate the amount that is being deducted from your salary as tax in order to plan your finances better.
Start now for retirement
The desire to maintain same lifestyle even after retirement require millennials to start planning for their retirement as early as possible. A starting step would be to check the provident fund and gratuity policy of your employers to get an idea of what you are contributing towards your retirement fund.
Investing in equities for a long-term could be great option to build a healthy corpus of retirement fund. Equities offer exemplary returns when invested for long period of time as the money invested compounds to beat almost all the other asset classes by wide margins. For those who are unsure of how to approach equity as an asset class for investment, mutual funds could be a viable option.
Starting early and investing wisely will give you an edge to have a good balance in your account by the time you retire as the power of compounding would work for you. Raise your financial awareness Make dedicated efforts to gain the requisite inputs for taking an informed financial decision. Inculcate the habit of reading up on financial markets and learning various financial concepts to reap greater benefits.
Be informed of the risk associated with various investment options.
Ask questions from experienced financial advisor if you need more clarity on investment concepts. Various online platforms are offering information about financial markets and products in a simple and easy to understand manner. Follow such portals to make sure that you are up-to-date and in charge of making your money work for you.
Ask for help, if need be Take help of a financial planner if you feel that professional guidance will make this journey simpler for you. An experienced financial planner can help you improve the overall quality of your financial decisions and to make bolder investment choices within acceptable risk limit.
They can guide you to take calculated risk and help you explore investment options that you might have overlooked. They can also help you to stay on track to fulfill your financial goals irrespective of changes in your financial goals, personal circumstances or the investment environment.