Millennials expect to create a better future, using the collaborative power of digital technology.
~ Mal Fletcher
It is a strategy that works well, only if millennials are not so much in a hurry, and work on longer time frames.
Technology is changing the world faster than it has ever changed before. It started from the internet and mobile phones and moved on to Web3 and the metaverse. We don’t know what’s coming next.
Yet, we need to be prepared for the future more than ever, because rapid change does not give us enough time to regain balance.
Money oils the wheels of life, and one can keep rolling with financial security in place.
Money in the bank gives you the freedom to quit jobs, take a sabbatical and start a side gig.
HOW MILLENNIALS WANT TO WORK AND LIVE
For the first thirty years of life, they spend their parents’ money, then their own. Saving and investing may not be on the agenda. If they do save and invest, it is for a short-term goal to buy something, maybe a gadget or car.
All financial action is likely to happen in the next 30 years. Again, there is no guarantee that employment will last till the age of 60. Longer life spans need you to be financially prepared for the last 30 years of life.
HOW MILLENNIALS SPEND MONEY AND WHAT SHOULD THEY PROVIDE FOR
Global lifestyles mean movement is mandatory. It also means renting is a better option than owning in several cases.
Relationships cannot be taken for granted. A break-up or divorce has financial implications.
It’s great to have options of surrogacy and egg-freezing for having children. It also means that the cost of childbirth is higher and needs to be planned for.
A higher risk appetite also means that a provision for sudden financial losses is needed.
Indian millennials are maximalists. Read more about it here.
LURE OF WEB3
One should not miss the experience of a particular wave. It is important to understand, learn and then decide.
The knowledge will be needed to evaluate options, or to understand the base of future trends and technologies.
WHY IS FINANCIAL PLANNING FOR MILLENNIALS IMPORTANT?
1. Power of compounding
The sooner you start, the larger you grow.
Risk coverage is important to avoid the leaking bucket syndrome for an individual or a family.
A term plan for life insurance in your twenties is available at low premiums. The coverage prevents you from getting lured into unit-linked insurance plans later, where charges are high.
You know how much is to be provided every year for risk coverage in the form of life and general insurance, and you plan your budgets accordingly.
Retirement can happen earlier than 60. You may want to take a break and do the things you want to do. One needs money to survive, whether on a sabbatical or a retired life of more than 30 years.
Retirement funds should ideally not be touched during your working years. It may be your provident fund or other investments.
4. Evaluation of rent or buy options
Can millennials afford to buy a house? Sure, they can with affordable housing schemes and easy finance options available. But they need to keep an eye on the total interest outgo if the loan is for a longer period.
Real estate appreciation is taken as 5%-6% p.a. in the current scenario. One needs a house to live in, but blocking too much money in real estate is not advisable, as other assets yield higher returns than this.
Frequent movement makes owning assets cumbersome. Rental options are available for most of the things like gadgets, furniture, apartments.
Make a smart choice to avoid blocking capital in things you may not use or discard on every move.
5. Evaluation of risk
It is important to understand your risk bearing capacity, despite having a high-risk appetite.
Investments in crypto, NFT or virtual digital assets should be a small percentage of your total investible surplus.
Invest a small amount, watch how it moves and exit at the right moment. There are people wo invested Rs. X in cryptocurrency, watched it grow to Rs. 5X and let it remain there. They did not need money at that point of time.
The current value of the same investment is less than the principal amount invested today, and they are waiting for another fool to buy it.
If the risk is high, one should be quick in booking profits.
Money can be left for the long-term in tried and tested safe instruments.
Investing through apps is fine, but remember that they give you ‘nudges’ to invest in particular funds, and earn a commission on that. It is about their financial gains, not yours.
6. Do not put all your eggs in one basket
Do not leave out bank deposits and small savings schemes from your asset mix. This will be the safe money you can rely on, when stock markets and crypto-markets fall.
You may opt for index funds, as they give stable returns over a period of time. The fund manager does not intervene with these funds. So, this money is at the mercy of only stock indices, not the integrity of the fund manager or other manipulations. Charges are low, so you get higher returns.
7. Budget for self-development
Skills are the name of the game, not degrees that are acquired only once. You will have to keep upskilling, reskilling to compete, excel or survive.
Allocate a certain part of your income towards this goal. Let financial education be a part of it.
After all this, remember that plans are only a projection of the future.
Things may or may not turn out the way you planned it.
Ability to adapt, revise plans and move on is the biggest skill needed in life. Because nothing can be taken for granted.