The concept of personal finance is something that every member of the Generation Y needs to understand. Money is no longer what it was 50 years ago and its value is only going to decrease over time. Moreover, many of us are quite oblivious when it comes to handling our finances in the real world. However, if we are to follow certain money-related guidelines, then it is quite possible to secure our financial future and also avoid monetary blunders. It may not be easy initially, but with discipline and patience, you will get the hang of it.
Learn to make a budget
This is the first lesson that millennials need to learn, period. It doesn’t matter how much you earn because until and unless you learn to make a budget and adhere to it, you cannot make any headway in your financial life. Prepare a monthly budget depending on your income and stick to it, no matter what. Track your daily finances using any of the numerous applications available online and make necessary amendments, if needed. Initially, you may not like living on a budget, but as your bank balance increases over time, you will feel that sense of accomplishment.
Develop the habit of saving every month
This is the golden rule of personal finance - save every month. No matter how big or small your income is, you should get in the habit of saving. If you are just starting your career, then you can save as much as 40% of your salary. However, as you proceed and other commitments come in the picture, you can drop down to 15-20%. These savings will come in handy as you progress through life.
Get a credit card
There is no doubt in the fact that millennials and credit cards don’t get along well. After all, several surveys have indicated that only 30-40% of the millennials have a credit card. However, the advantages of having a credit card outweigh its drawbacks. If you are one of those millennials without the plastic, then it’s absolutely imperative that you apply for a credit card now.
A credit card doesn’t only give you a line of credit, but it also helps a great deal in building your credit score. In fact, using the card responsibly is one of the best ways to build a great credit score. When you go to apply for a personal loan or a home loan later in your life, your credit score will be the first thing that the lender will look at. Hence, getting a credit card early in your career will give you a headstart in building a good credit history.
Prepare an emergency fund
The importance of having an emergency fund is something that cannot be stated enough. Regardless of your income or the debt that you are in, it is important that you find some amount and keep it in an emergency fund on a monthly basis.
This emergency pool will protect you from any financial trouble that may plague you in the future - loss of job, medical emergency, et cetera. Furthermore, if you continue to save like this, then you will soon find yourself with more than just an emergency fund and that money can be used for any other purpose like travelling, buying a car, et cetera.
Don’t undermine the importance of insurance
Considering the fact that medical facilities in today’s world are quite expensive, paying for them through your income is definitely not a good idea. Imagine paying thousands of rupees for a minor injury - seems pretty harsh, right? That’s why having health insurance comes in handy during the time of medical emergencies.
There are numerous health insurance plans out there to select from, each with their own benefits. All you have to do is pay a premium on a monthly basis and you’re secured!
Similarly, having life insurance is quite important too. If your significant other or your family members are relying on you for financial support, then it’s crucial that you apply for life insurance now and secure their future. Your absence is quite likely to make their lives difficult as it is and the best you can do is spare them the financial stress by opting for a good life insurance now.
Just like health and life insurance, you should consider opting for vehicle insurance too, provided you use your car or your two-wheeler regularly. A decent car insurance plan will not only provide you with accident coverage but also prevent you from paying a hefty compensation, in case you get in an accident.
Understand how taxes work
Income tax may seem like a boring topic to explore, but it is crucial that you understand how it works. You need to calculate how much money you will be getting in hand after the tax deductions and then plan your budget and financial goals. Moreover, getting a grip on taxes can also help you claim appropriate deductions.
For example, if you have availed a home loan, then knowing that tax deductions can be claimed on interest and principal components of the EMI will help you save quite a bit of money. Similarly, deductions can be claimed for the premiums paid on insurance policies. However, it is advisable that you check the respective rules under the Income Tax Act, 1961 and research thoroughly.
The trick to becoming financially sound is not to get a high-paying job (although it helps), but to smartly invest the income that comes from it. There are plenty of investment plans out there like mutual funds, public provident fund, securities, bonds, et cetera, that can help your money grow. The ideal goal of investing should be to amass wealth for retirement and that’s why, invest in plans that have a long tenure.
However, before you proceed with this, keep in mind that many of these plans are subject to tax deductions. Secondly, given that they are prone to market risks, it is important that you learn the ins and outs of these investment schemes carefully before investing.
It goes without saying that these tips do not require a great deal of knowledge or a fancy degree. All it takes is some dedication and the will to be financially sound.