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.

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%.

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.

For in­stance, a 25-year-old in­vest­ing ₹5,000 per month un­til re­tire­ment at 65 years would be in­vest­ing a to­tal of ₹21 lakh and with a 8% an­nual growth rate, will have a re­tire­ment cor­pus of ₹1.08 crore, gain­ing ₹87 lakh. On the other hand, a per­son who starts in­vest­ing ₹5,000 per month at the age of 35 years, would be in­vest­ing ₹15 lakh in to­tal till age 65, and at an an­nual growth rate of 8%, the re­tire­ment cor­pus would be ₹46 lakh, gain­ing ₹31 lakh. You in­vested ₹6 lakh less, but your re­tire­ment cor­pus was less than half, all be­cause you started 10 years later. There­fore, one should be­gin his/her in­vest­ment jour­ney at the ear­li­est.

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

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.

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 low­in­ter­est-rate loans, con­sider in­vest­ing in a debt fund where the in­ter­est you earn ex­ceeds the in­ter­est you pay. That’s smart money in your pocket.

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. Ev­ery ₹1,000 you don’t save could be about ₹15,000 less for your re­tire­ment fund, at a con­ser­va­tive 8% growth in 35 years. So, if you’ve dreamt of buy­ing a round-the-world ticket on your 70th birth­day, start now.

To sum it up, millennials need to pre­pare for the com­ing decades that may in­clude global eco­nomic un­cer­tainty. One needs to start early and con­tinue in­vest­ing a con­sid­er­able part of earn­ing reg­u­larly. It is al­ways ad­vis­able to seek help from fi­nan­cial ad­vi­sors and plan­ners.

Ku­nal Ba­jaj, is head, wealth man­age­ment, Mo­bik­wik

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