If you belong to the millennial generation, it is highly crucial for you to build a strong financial base for long-term stability and success. This will help you become financially responsible, make informed decisions and properly plan for the future.
Financial planning determines how to best utilize your money to achieve your various financial objectives, both in the short and long term. It enables you to systematically and sustainably meet your goals while taking into account your current financial situation. These objectives can encompass a wide range of areas, such as establishing an emergency fund, planning for retirement, obtaining insurance coverage, making investments, and saving for major expenses like a vehicle or a home. In essence, financial planning entails directing your income towards different purposes, recognizing that your money can work as hard as you do to meet your future financial needs.
Financial Planning is something that is vital along with critical for everyone. Intelligent financial planning will make you tackle big financial obstacles that simple money saving would not help overcome.
For Example- Due to inflation, the cost of goods and services is constantly and gradually rising. It means that the purchasing power of INR 5,000 today will probably decrease in the next 5 years. So the only possible solution for such a scenario is appropriate and smart financial planning for a secured financial future.
Despite witnessing the world embrace technology and the internet at unparalleled rates, millennials were raised with limited exposure to financial literacy. Consequently, even fundamental aspects of personal finance, such as filing income tax returns or establishing savings, may prove challenging to comprehend. Investing in readily available credit lines with uncertain costs and a lack of experience in managing debt and repayments creates a potentially unstable financial scenario.
The economy will tend to change quickly, as it has always done, whether it takes years in the making or develops overnight. The Covid-19 pandemic serves as a prime example, as it resulted in a substantial decline in GDP, widespread unemployment, manufacturing shutdowns, and general uncertainty, impacting millions of Indians. Our vulnerabilities, particularly our financial ones, became exposed during this time. It highlighted that even something as seemingly secure as our income flow can shift unexpectedly, emphasizing the importance of being better prepared.
In order to begin somewhere for performing financial planning, it is extremely important because, through this way, you can easily track your expenses and evaluate your current spending habits in comparison to your income. It's helpful to create a list of both short-term and long-term financial objectives. These goals can range from buying a new car to saving up for a vacation. By having a clear idea of your goals and how much money you need to allocate to each one, you'll be able to create a solid plan.
Savings play a crucial role in funding investments, purchases, and overall financial objectives. It's important to consider the appropriate amount to save. Financial professionals typically suggest following a 50-30-20 ratio, where 50% of your earnings go towards daily expenses such as rent, transportation, and food, 30% towards personal expenses like clothing and online courses, and 20% towards savings.
Ensuring basic insurance coverage is imperative. Until recently, insurance products were not widely adopted in India, with many considering them a luxury or unnecessary expense. Instead, they opted to pay for unexpected costs out of pocket as the premiums were deemed too costly. However, the past year’s events have shown us the dangers of leaving ourselves and our loved ones vulnerable without adequate coverage. Thus, taking steps to protect oneself in unforeseen circumstances is no longer a luxury but a necessity. An insurance policy can prevent you from spending more money on unexpected expenses, which can otherwise deplete your savings and set you back by several months.
Investment strategies vary from person to person, as everyone has a unique risk tolerance that influences their approach to investing. Therefore, individual differences and risk appetite levels determine one's investment style. Various investment options are available, such as mutual funds, stocks, direct equity, bonds, real estate, gold, and more.
Diversification of investment is a crucial aspect of financial planning. It involves spreading out investments across different asset classes and investment vehicles to mitigate risk and maximize returns. As you may know, various investment avenues, such as stocks, bonds, real estate, and commodities, come with their own set of risks and potential rewards. By diversifying your investment portfolio, you can reduce your overall risk exposure and protect your investments against market fluctuations and other uncertainties.
Since nobody can work indefinitely, planning for a steady source of income after retirement is essential. For many individuals, pensions are not guaranteed, which makes it even more crucial to establish a reliable source of income to maintain their lifestyle and independence.
Financial planning aims to achieve several objectives, with retirement planning being one of the most important. The savings, investments, and financial decisions that you make today can significantly influence the quality of life you will have during retirement. Hence, planning and preparing well in advance is vital to ensure a comfortable and secure retirement.
In comparison to the previous generation, millennials are in a time of extreme economic uncertainty like a highly competitive job market and rising living costs. And in the current scenario, the unique set of financial challenges like rising housing costs and the need to save money after retirement at a young age. Such major challenges require us to start financial planning proactively to make smart investment decisions for the future, as it will lead to long-term stability and success.
