5 ways millennials can be smart with their money habits

HSBC Mutual Fund | 16 March 2024
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By now, it has become quite clear that as a generation, millennials have a very different approach to savings and investments than their previous generations. As per the recent data, millennials are saving more than ever. Mutual fund industry witnessed an influx of 84.8 lakh new millennial investors in the last five financial years (FY19- FY23) on the back of massive awareness campaigns, conducive market conditions and digital access. Despite this good news, millennials still feel behind financially compared to peers and are juggling substantial debt levels with near and long-term financial priorities.

So here are 5 simple ways to manage your money habits smartly:

Plan, Prepare & Persist

Having a financial plan in place is key. List down your expenses in order of priority and cover them one by one. What goals do you have? Identify your short, medium and long-term goals and have a timeline for all such events. Designate a budget for every expense. Consult a Financial Advisor to plan and take help in building your portfolio as per your goals & risk appetite. Incase you have a knack for investing on your own, improve your skills by taking courses, order online courses or enroll in various programs that will add to your skillset.

Equity well suited for India’s young demography

Look for the right asset mix based on your risk appetite and goals. Being a millennial, you have the advantage of having a longer timeframe before you retire, meaning you have more time to ride out any market swings and benefit from long-term compounding. If you are looking to cash out in the short term, you should consider low-risk investments from the fixed income space.

Investing in equity-based instruments is one of the best ways to counteract inflation and accelerate the long-term growth of your money. Set up an SIP to inculcate a habit of regular saving and build discipline. Here's an example - Mr A started investing Rs 10,000 per month in January 2000 and persisted with his investment over the years. His total investment of Rs 27.5 lakh had a market value of Rs 1.6 crore in December 2022 with an XIRR of ~13.3%.

Successful financial planning not only entails investing regularly but also analysing investments every few years as goals could need to be re-prioritised with changing lifestyles and age.

Do not forget to boost your contributions in small, steady increments and time the step-ups to your annual increments and bonus. Also include tax-saving strategies in your overall financial plan.

Source: BSE, CRISIL Research, Data as at December 2022

Monthly SIP of Rs 10,000 in S&P BSE Sensex from January 2000 on the first day of the month.

Past performance may or may not sustain, past performance does not guarantee future performance.

Create a Contingency Fund

Don’t let unplanned expenditures burn a hole in your pocket! Planning for what you know is going to happen is easier than planning for uncertain events such as job losses, medical emergencies, unforeseen circumstances, or any such event which you might not have expected. Such unexpected events could empty your savings and wreck your planning. It’s a good option to have funds dedicated to such contingencies which may or may not befall you.

Eliminate debt & use your credit wisely

One of the major investment complications for millennials is debt and loans to be repaid. As a first step, you need to prioritise the repayment of your loans. Make a list of all outstanding loans and then identify the ones that need to be tackled first. Pay off what you owe and then contribute that same amount to your savings — and watch your wealth grow.

Using credit responsibly is an important part of a sound financial plan because your credit score impacts your ability to make almost any big financial purchases. Be sure to pay your bills on time and try to keep your balance well below the limit of the card. Take advantage of technology and tools to avoid credit pitfalls.

Start saving for your retirement

There is only one way you can get it right – plan your retirement well and early. Just like the early bird gets the worm, investing early and when you have time on your side, you can benefit from the power of compounding and the length of time until retirement. Depending on your current lifestyle, calculate the retirement corpus you will need and start making contributions accordingly. A key tool that allows you to invest regularly, smoothen out market volatility and benefit from the power of compounding is Systematic investments in equities which could help in building up a sizeable corpus over the years.

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