India is home to some 440 million millennials or people between 23 and 34 years of age. , therefore, is the age when most millennials are busy making a career or promoting own business. If you’re a millennial, this is also the most important phase of your life financially.
Interestingly, India’s millennial population is also the single largest target for companies to market their products and services. That’s natural because millennials constitute over 34 percent of the population of India compared over the global average of just 27 percent. Hence, an Indian millennial is more prone to indulge in reckless spending or poor financial management.
If you’re a millennial that wants to make the best from your income and manage money, here’re some vital tips. Remember, the decisions you take today as millennial will affect your future life including retirement.
Money Management Tips for Millennials
Regardless of whether you’re a salaried person or own a business, a millennial is often torn between financial prudence and spending for prestige. It’s an age when you wish to impress others for several reasons. Living frugally means you miss enjoying life while spending without caution has lifelong repercussions.
Therefore, here’re some tips for millennials to manage their money.
Prioritize Your Savings
Renowned American entrepreneur Warren Buffet says: “Do not save what is left after spending but spend what is left after saving.”
The billionaire implies savings should be your priority over expenses. Rightly so, because spending has no limits.
When you save before spending, you’ll handle money with more caution. That’s because you’re aware you have lesser cash on hand to spend. At the same time, the money you’re saving starts working for you to fetch good returns if you invest wisely.
Keeping Warren Buffet’s adage in mind, the first tip, therefore, is to enforce a savings first policy to manage your money. Invest in plans where you’ve to pay a fixed amount monthly. These can include Systematic Investment Plans (SIPs) of Mutual Funds, Recurring Deposit account, or Public Provident Fund.
Remember, a life insurance policy isn’t an investment plan. Nor does your money grow, as insurance agents would like you to believe. Many millennials mistake an insurance policy as an investment and end up paying huge premiums.
Buy a Home
Understandably, as a millennial, you’ll be aghast when I suggest you buy a house. With property prices skyrocketing across India, even a small dwelling can cost a few million Rupees. However, buying a house is very prestigious in India. And it’s one of the best investments for your future.
Obviously, as millennial, you wouldn’t have the money to buy a house outright. Therefore, look for excellent home loans. Nowadays, banks and Non-Banking Financial Companies (NBFCs) almost fall over one-another to offer home loans. They try and woo millennials by offering attractive interest rates.
Buying a home in India is an excellent investment. Here I’m not speaking about surges in real estate prices since the market can prove very volatile at times. Instead, I’m speaking about the security and peace of mind you enjoy when you own a home.
Furthermore, a home loan comes with Equated Monthly Installments (EMIs). This means you’ll have to part with some part of your income as EMI to the bank or NBFC from whom you take the home loan. Hence, you’re indirectly saving the money while building an asset. Whether the price of your home picks up or not is highly debatable, but it’s worth you’re investing your money in real estate.
Minimize Credit Card Spending
Over 300 million Indians come under the ‘Middle Class’ or ‘Middle Income Group’, according to a recent classification by Germany’s largest lender, Deutsche Bank’s research wing. The Indian middle class is the primary market for banks to promote credit cards.
And most middle-class people opt for credit cards for one primary reason: it increases their buying power exponentially. While it’s good to have a credit card, it’s also worth noting inherent risks.
A credit card comes with something known as the Annual Purchase Rate (APR). While banks claim their APR or ‘interest’ is just two percent on unpaid dues, simple calculations will prove it can cross the 24 percent mark per annum. The so-called ‘Revolving Credit’ system that credit card issuers offer so willingly is a sugar-coated guise to make you pay more APR.
Having a credit card isn’t bad. It helps build your credit score. In India, a credit score of 700 and above is considered as best. But if for any reason you default on paying credit card dues, your credit score will nosedive sharply. Additionally, the APR you pay to avail ‘Revolving Credit’ eats heavily into your monthly income.
I’m not implying you avoid credit cards. Instead, use credit cards minimally and only when necessary. Also, pay all dues in full to avoid unnecessary APR payments. And the best solution is to get a secured credit card. This means you’ll have to keep money in a Fixed Deposit account with a bank and avail credit card by pledging it. This protects you from damaging credit score due to default, since the bank will adjust your dues against the Fixed Deposit.
Avoid Unnecessary EMIs
Buying that sleek, new, feature-packed smartphone on EMI is something every millennial takes for granted. However, the credit you avail for smartphones, two-wheeler or a car burns a hole in your pocket, without you realizing it. A smartphone and vehicle are things whose value begins depreciating instantly. Try buying a smartphone or vehicle today and try selling it tomorrow. You’ll experience first-hand what I’m saying about price depreciation.
The cost of that smartphone, vehicle, latest TV set, laptop, and other stuff and their EMIs may not add up to much. You might be able to afford these EMIs easily. However, multiple loans mean your credit score takes a severe beating. No retailer or vehicle dealership speaks of this adverse impact on your credit ratings.
Hence, millennials can best manage their money by avoiding multiple credit or loans. If genuinely necessary, buy only one thing on credit and pay off the dues completely before buying something else. Also, consider the interest you’re paying on EMIs. When you add up this interest, it works to a considerable amount. And this amount would be better used if you invest in something rather than spend as interest.
Make Money Online
As millennials, you’ll find ample opportunities to make money online. I encourage you to find at least one way to make money online during your spare time. That’s because a millennial is more likely to spend time on fruitless pursuits. Instead, think of your time as an investment and use it to fetch good returns.
Nowadays, there’re plenty of online jobs available for a millennial. You can select one according to your skills. I would also suggest blogging since it paves the way to earn infinite income. You need a domain and WordPress hosting to start your blog. There are various web hosting companies like Bluehost, Hostgator that provide WordPress hosting for as low as $5 per month. You can blog about your profession or hobby and monetize it through Google AdSense.
As millennial, another great way to manage money is by upping your income. That’s possible by working online as a freelancer. India is home to the world’s second-largest population of white-collar freelancers. An estimated 18 million Indians, mostly millennials, work as freelancers. About 23 percent of Indian freelancers earn more than Rs.2 million per year.
Invest in Stocks
Understandably, the Indian stock market witnesses downturns quite frequently. However, that doesn’t imply that stocks are bad investment or forte of the super-rich. Instead, every millennial should invest in stocks. As millennial, you can invest in stocks through Initial Public Offerings (IPOs) or buying on the secondary market.
To invest in stocks, you’ll require a Dematerialized (DEMART) and trading account with any reputed stockbroking company. They provide live tips on hottest stocks to invest during any trading day. You’ll also need some understanding of the stock market and excellent research to invest in the right ones. You can do a stock trading course or learn yourself.
As millennial, swells and troughs of a stock market needn’t worry you. You can stay invested for a long time. Hence, it’s imminent that your stocks will gain tremendous value over time. Furthermore, you can also make a lot of money by learning and engaging in daily stock trading. However, daily stock trading to make money requires astute knowledge about the market, national economy, and various industrial sectors, among others.
Use Budgeting App
There’re several excellent budgeting apps you can download and use free on your smartphone. My favorite is ET Money that comes from India’s leading financial newspaper, The Economic Times. However, you’re free to choose any app that better suits your needs.
A budgeting app helps you create spending limits under various heads such as food, transport, entertainment, and others. It alerts you whenever you cross the spending limit. Additionally, you can also review your spending and eliminate unwanted or unnecessary ones immediately.
As millennial, you surely wouldn’t have the inclination and time to write your expenses. Hence, using a budgeting app is advisable. It will record all your expenses such as ATM and cash withdrawals, credit card spends and other spending has done using electronic and digital channels.
Any millennial that uses the above money management tips would be securing their future and have no regrets over squandering away their income. Hence, I strongly recommend you begin practicing these tips immediately. It’s quite understandable that changing spending patterns and working from home aren’t things that can be done overnight. Yet, with some sense of purpose and determination, you can succeed tremendously.