As one of the fastest developing economies in the world, India is at the center of global interest. Investors and institutions vying for the India opportunity are prompting an uptick in income and status levels among the working Indians. Millennials, comprising 46% of the workforce at present, are the primary beneficiaries of this development.
Based on recent surveys, 80% of the millennials regard ‘Wealth’ as a top priority. Millennial parents, mainly men, are no longer living only for themselves, or self and partner alone, but also aspiring to create wealth for their next generation. Done right, this can have a meaningful contribution to the growth of income in the society. Like every goal, this one too requires building the right perspective and a gameplan.
Having a disciplined money management framework can help accomplish any goal. Below are a few simple steps that millennial fathers can take in their pursuit of creating and managing wealth.
Set up a Plan
While it is great to have clarity on the end goal, however, a detailed gameplan in place helps in not letting these goals remain just a dream. Start by carefully listing down your financial goals. This rundown will help you to deprioritize goals which might appears to be significant temporarily yet may lose relevance over the long term. Then, assign each goal a time frame, bifurcating them into Short Term (1-3 years), Medium Term (3-5 years) and Long Term (5 years and above). This will help in choosing the right investment instruments to help get to the desired corpus within the specified timeframe. While planning, ensure that you don’t compromise on your long-term financial security for short term indulgence.
A recent study showcased that even with grand financial plans, 57% of the millennials park their money in Fixed Deposits. While it is critical that you invest your money in the right investment option, FDs alone cannot assist you in accumulating corpus that beats inflation. Assuming, if wealth creation is your objective, having a diversified portfolio, including a mix of savings, insurance and investment is par for course. For example, an insurance plan bought under the Married Women’s Property Act is a useful Estate planning tool and used by wealthy for smooth transition of wealth to the family. Hence, with a bit of research and advice from specialists, one can identify the appropriate options to build and protect long-term wealth.
Patience is the Key
Wealth creation is surely not a short-term exercise. It takes time and requires patience. Regular investments, with an assumption that they will appreciate in value over time, are at the core of the wealth creation process. It involves assets such as gold, property, equity and so on, considering that their value will rise in future and help in creating wealth. Since it is a long-term process, it is prudent to not get bothered by transient fluctuations.
Breaking the debt cycle
Furnished with easy access to credit cards, BNPL etc., millennials sometimes end up indulging in expensive transactions which they may not necessarily be able to afford. Depending heavily on credit instruments can compromise future financial freedom. Hence, use credit cards only for unavoidable, big-ticket transactions. Limit the amount of credit cards to one or two. Make sure to pay your card bills ahead of the due date to avoid ballooning debt. For other liabilities, such as home, personal or education loan, understand the terms and conditions of the bank carefully. Compare the interest rate/loan fee offered by various financial institutions. Once you opt for a loan, ensure that you pay your EMIs on time to avoid penalties and charges. In case you get bonus or lumpsum payout, instead of indulging, prioritize loan repayments. An obligation-trap serves as a drain on wealth creation and thus it is vital to break that cycle at the earliest.
Raise your financial awareness
While millennials are more mindful of the need to plan their finances, there is still some work to be done in raising awareness of the choices as well as the risk-return tradeoff. Information on various financial instruments is essential to pursue better investment choices. There is a great deal of content accessible online to clarify such doubts and understand the ramifications of your choices. Since it is your money and your goal, some degree of self-research is ideal, instead of relying on investment tips from friends and relatives. By actively seeking information, one can avoid various false traps that one may encounter in the process.
While millennials enjoy an upper hand over their predecessors in terms of exposure to financial markets and information, they can learn a few lessons on discipline from their parents too. Combined with the willingness to learn and research, a systematic approach is an enabler of financial security for self as well as financial well-being of the next generation.
(By Ashish Misra, Chief Operating Officer — Retail Banking, Fincare SFB)