Tag Archive : personal finance

7 Biggest Money Mistakes Millennials Make

7 Biggest Money Mistakes Millennials Make

Financial Lessons for Millennials How to Avoid These Money Mistakes

Introduction

In this article, we are going to discuss the 7 biggest money mistakes millennials make (that you should not make). Here are key financial lessons for them how to avoid these money mistakes.

7 Biggest Money Mistakes Millennials Make

Some Millennials are rich in personal finance knowledge and awareness, while many other millennials fall short of being wise with their money.

Let us see the biggest money mistakes Millennials make :

7 Biggest Money Mistakes Millennials Make
7 Biggest Money Mistakes Millennials Make

1. Failing to Start Investing Early

  • When it comes to investing, the earlier you start, the better corpus you can build. Research shows that Millennials are less likely to have general investment knowledge compared to older generations.
  • Millennials are more conservative type of investors despite having a longer timeline than their older Gen X and Baby Boomer counterparts. That is mostly due to the fact that they witnessed the largest market meltdown in decades during their formative years.
  • Early investing is one of the most important steps to reach financial freedom. Putting money into a growth vehicle can be one of the prudent ways to make a new income. All it takes is a little research.
  • There are different ways of investing hard-earned money, including :
    1. Mutual Funds
    2. Stocks
    3. Index Funds
    4. ETFs
    5. Real Estate Investments
  • If you’re clueless about how to invest, you can approach a financial advisor.

2. Spending at the Rate of Earnings

  • The most damaging money mistake millennials make is spending more than they have. This often goes hand-in-hand with not knowing how much you spend. At early career, living in the moment sounds a lot more appealing than planning for the future. But you’ll never reach financial freedom if you keep falling into the trap of ‘lifestyle inflation’ or increasing your spending as your earnings go up.
  • For example, Don’t upgrade to a bigger apartment just because you got a raise. Don’t plan for an expensive vacation just because you got a bonus. Instead, focus on the bigger picture and save that money or use it to pay off any existing debt.
  • With just some minor belt-tightening, you can grow your money and spend it on more important financial goals such as buying a house, early retirement, protecting your family etc.

3. Not Having Emergency Savings

  • An emergency fund is a safety net which will protect you in case of any financial emergencies such as a job loss, illness or injury.
  • Ideally, you should have enough in your savings which will provide around six-month cushion of living expenses. Any amount of emergency savings can go a long way.

4. Letting Credit Card Debt Pile up

  • The habit of swiping credit cards can be addictive and disrupt your financial calculations. Credit cards can be a great tool, if used responsibly.  The problem the millennials generation is facing is that most millennials use their credit cards for almost everything. For example, Clothes, shoes, coffee, groceries, vacations, entertainment. One should change this habit.
  • Because this “buy now, pay later” mentality can come at a cost. High interest rates and never-ending minimum payments can steal hard-earned money that should go towards short-term savings or investing for retirement. Use your credit card wisely depending on your cash flow management.
  • There are two important rules when it comes to using credit cards :
    1. Don’t rely on it to pay for life’s necessities
    2. Don’t overspend on things you don’t need
Personal Financial Planning Knowledge Bank by Invest Yadnya
Personal Financial Planning Knowledge Bank by Invest Yadnya

5. Not Having a Plan to Get out of Debt

  • Building debt has never been easier and that’s one of the biggest money mistakes one can make at any age. Swiping a credit card or financing big purchases like phones, TVs, furniture make falling into debt seem almost inevitable.
  • And once you’ve made the mistake of falling into a cycle of debt, it can be impossible to escape. Interest rates and penalty fees for late payments add to the total amount you owe. 
  • You should always have an action plan for handling your debt. Before you take on any debt, you should do the required calculation and do some planning ahead of time. This is the first step in building a budget.

6. Not Saving for Retirement

  • Waiting to long to begin saving for retirement is a huge mistake that will come back to haunt you in the future.
  • Another big thing millennials tends to skip out on is their retirement fund. The major two reasons retirement planning is ignored by individuals in their 20s is because they think they have enough time to start, and they’re not in their dream job.
  • So, you should start your retirement savings now and benefit from having time on your side to grow your investments.

7. Forgoing Health Insurance (Not Being Proactive about Health)

  • Warren Buffett said, “You have only one mind and one body for the rest of your life. If you aren’t taking care of them when you’re young, it’s like leaving that car out in hailstorms and letting rust eat away at it.” Getting rid of all that rust is going to be very expensive.
  • The common mistake the millennial generation makes is to take health insurance for granted. It might be hard to balance your budget when you have to pay a monthly payment to a health insurer, but doing so can prevent major debt later down the road.
  • Being proactive about your health will help you live longer and prevent high health care costs in the future.

Summary

  • Millennials world rotates around spending money without considering the consequences. So, Millennials should never waste money in paying for an unnecessary streaming service, overpaying for brand-name electronics etc.
  • Your hard-earned money should work for you in course of time. By improving the awareness towards personal finance and imparting financial discipline, you can easily avoid these money mistakes.

What is Financial Freedom?

What Does Financial Freedom Mean To You?

Introduction

India is celebrating its 72nd Independence Day tomorrow on 15th August 2019. So Lets discuss about what is financial freedom or financial independence from personal finance perspective. What Does Financial Freedom Mean To You?

What is Financial Freedom?

  • As we all know, India got the freedom on 15th August 1947. This freedom was an outcome of sacrifices made by great leaders.
  • In the same context, for investors, financial freedom will come at the cost of years of savings and tactical investments to create wealth.
  • Financial independence is about taking ownership of your finances. You have a dependable cash flow that allows you to live the life you want. You aren’t worrying about how you’ll pay your bills or sudden expenses. And you aren’t burdened with a pile of debt.
  • It’s about recognizing that you need more money to pay down debt and maybe increasing your income with a side hustle – we’ll get to that in just a minute. It’s also about planning your long-term financial situation by actively saving for a rainy day or retirement.

Key Features of Financial Freedom vs Debt

What is Financial Freedom?
What is Financial Freedom?

What Does Financial Freedom Mean To You?

  • How about you being able to celebrate your own Independence Day or your Financial Independence Day to be more precise.
  • What Does Financial Freedom Mean To You? Does earning a big salary mean financial Freedom? In spite of having a high salary, why people many a times feel cash strapped when some emergency strikes? 
  • The answer is simple for those who understand the difference between income and wealth, and how to create it manage to be financially independent.
  • Also we need to value money for what it is and look at the money positively as an investment or savings than as a expense.
  • Income is merely the flow of money that enables you to meet your day to day expenses, provide for your living, some leisure and wants to be able to survive.
  • Whereas wealth is an outcome of what you do with the income and how well you accumulate and improve your financial strength to be able to sustain for a long term.
Financial Planning
Financial Independence and Investing
  • According to financial goals or objectives, Investing is the right way to achieve financial independence.
  • Apart from the traditional investment options, experts are of the view that equities alone can get you the financial independence.
  • Investing is not a one-time activity but more of a continuous process. The investment methodology will be different when you start investing in your 20’s and will change when you turn 40 and later on towards your retirement age, above 60’s.

Conclusion

In short, financial freedom is when you don’t have any kind of financial stress or any worries. Your investments are in the right place and are in a position working hard for you.

Personal finance

4 Actions To Be Taken in New Financial Year

Rules To Follow At The Start of New Financial Year

Introduction

When a new financial year starts, one should immediately start taking actions wisely on the financial planning and the investments. In this article, we will see the actions to be taken in the New Financial Year from a personal finance perspective.

What Actions One Should Take?

4 Actions To Be Taken in New Financial Year
4 Actions To Be Taken in New Financial Year

1. Plan your Section 80C Investments

  • The earlier one makes investments for Section 80C the better it is for that person. If one makes investments on 1st April itself, then one can get the interest on it for the whole year.
  • If you are a salaried person, then you have already calculated your deductions and are known whether you are availing the full benefit available Section 80C.
  • In case not, then one can invest in various tax saving schemes such as Public Provident Fund (PPF), Senior Citizen Saving Scheme (SCSS), 5-year Fixed Deposit (Tax Saving), or other tax saving schemes. These investments are not linked to the markets directly but are dependent on interest rates. This is a very good advantage. There is no uncertainty or volatility risk in these investments.
  • The best way to combine long-term wealth creation with tax savings under Section 80C is to invest in Equity Linked Savings Schemes (ELSS), popularly known as tax-saver mutual funds. Instead of waiting till March, you should start investing in ELSS in April. It will allow you to diversify the risk across time instead of putting in a lump sum at the end of the year.
  • If one is a risk-averse investor and want to invest in fixed income securities, under Section 80C for tax saving, then one can definitely invest in such schemes.
  • You can find more about these investments and their interest rates here.
  • Public Provident Fund (PPF)
  • Senior Citizen Saving Scheme (SCSS)
  • 5-year Fixed Deposit (Tax Saving)

2. SIP Planning

  • SIP planning is another important action, which is better to be executed at the start of the financial year itself.
  • One also needs to check their inflows and outflows. After deducting the outflows from inflows, the surplus that might be left can be used as additional SIP.
  • Some people may have planned to step-up their SIP’s every year. Then this is the time for them to do so, because one can allocate that much amount towards SIP from the start of the financial year itself and not tend to utilize it elsewhere.

3. Complete Your Financial Planning

  • If one has not undertaken their financial planning, then one shouldn’t delay it anymore and get on it without further delay. They should immediately take actions to plan their financials and take actions accordingly.
  • When one undergoes financial planning, it provokes a thought process through which one can understand about their financial goal, risk profile, and thus, investment strategies on the basis of those things.

4. Review the Financial Plan

  • If one has already completed their financial planning, then this is the time to review the already built financial plan.
  • Study and analyse various things such as last year’s performance, how have the plan progressed towards the goals, which goals got achieved, is my asset allocation strategy still correct, what changes need to be made etc.
  • If one hasn’t reviewed their portfolio for a while, there is a good chance that relative market performance of asset classes in last one year may have changed the investment mix, causing the combination of mutual funds, stocks, bonds and cash to drift away from the financial plan. Postponing reviewing of one’s financial plan can add risk, which might cause financial goals to be not achieved as per planned periods.

Summary

  1. The above mentioned 4 actions are very important factors financially.
  2. A risk-averse investor can always opt to invest in fixed interest and fixed income securities, and should do it as soon as possible.
  3. One should immediately go and carry out their financial planning. And for those who have, they should review the plan and take calls on it after, if necessary, studying and analysing it.
  4. Plan your SIP’s smartly and make additions to it if there is a new surplus available.

Notes: –

  • We are not suggesting anyone to immediately go and buy stocks or invest in the stock markets.
  • We are also not suggesting anyone to invest in any specific scheme mentioned above.

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