How Millennials Can Overcome the Financial Challenges - Outside View by PersonalFN

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How Millennials Can Overcome the Financial Challenges
Apr 14, 2021

Millennials are struggling with various financial challenges; mainly their finances are evaporating faster, limiting their ability of saving for a healthier financial future.

The generation that's been at the center of digital revolution, millennials have a plethora of innovative opportunities with education, socializing, and career prospects across the globe. Consequentially, the priorities of millennials vary from that of the older generations who did not have access to such wide-net openings. It becomes a difficult task for millennials to maintain their financial well-being because ultimately lifestyle choices, money management habits, and spending patterns are dynamically adapted according to ongoing trends.

As a millennial, there is a tendency to live beyond your means in order to keep up with peers, which may lead to an increased debt burden. It causes you to run out of money at the end of the month because you splurge at the beginning of the month.

Along with rising inflation, many millennials are grappling with repaying their education loans while stabilizing their careers; only few are contributing towards retirement savings and rainy day fund. In addition, some millennials do not want to take investment risk due lack of financial literacy or low investment levels. They prefer to accumulate a huge sum instead, which leads to delay in wealth creation.

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When the pandemic struck hard last year, however, these financial hardships for millennials became even worse. The pandemic triggered an economic downturn, and millennials experienced layoffs and pay cuts, it affected their finances and ability to build wealth. In the COVID-19 economy, the young workforce has been searching for new job opportunities in the hopes of better pay and career growth; based on the current scenario, it appears that this trend will continue in 2021 as well.

While millennials have still not recovered from the pandemic induced job loss of 2020, the government has imposed a lockdown recently in several states of the nation to curb the resurgence of COVID-19 cases. This has impacted the economic and commercial activities that resulted in reoccurrence of job loss and pay cuts. According to Centre of Monitoring Indian Economy (CMIE), the unemployment rate was improved in January 2021 by 6.53%. But, due to rise in spread of virus, the rate as of April 12, 2021 has increased to 7.1%.

The uncertain events triggered by the coronavirus pandemic, on the other hand, have caused a shift in millennials' approach towards their hard-earned income. Now is the time to concentrate on improving your financial wellbeing in order to secure a brighter financial future.

You see, if you learn how to optimize your finances and money management habits, it will help you to survive in tough times. Let me guide you with few points to overcome such financial challenges that you may face as a millennial:

  1. Manage your spending habits

    How you spend today will determine whether you will have a better financial future, your financial health is majorly linked with your spending habits. Most millennials are of the view to live in the moment and may splurge on various non-essential commodities like expensive mobile phones, gadgets, branded clothing wear, high-end restaurants, etc. The key to secure financial future is to spend within your means and not extend your spending beyond limits you cannot afford.

    You must adopt budgeting exercise to manage your cash flows and plan accordingly and to spend as per your income. It is paramount to set a certain amount aside for saving and investing purpose. This will also help you understand the spending limit you need to set and eliminate the avoidable expenses to apportion a better amount towards saving and investing.

  2. Financial potential

    Your financial potential is the ability to save for the future and dependency on current savings and investments. Due to the pandemic, many have seen a reduction in their saving and investing amounts, as other expenses have increased or the low earnings. You may consider to save and invest even if you have a small budget. After all, "Little drops of water make a mighty ocean".

    Saving for a rainy day fund could help you survive the tough times like pay cuts or job losses or any financial difficulties. And you may feel as a millennial it is too early at your age to plan for retirement savings, but early planning for retirement will be beneficial for you providing a long horizon to build a huge corpus.

    If you haven't yet started saving for your contingency fund, retirement planning, and investing in various financial products for wealth creation, you should start as early as possible regardless of how large or small the amount is that you set aside.

  3. Learn: How to Potentially Accumulate Rs 7 Crore in Wealth Over the Long-term

  4. Prevent debt burden

    Millennials tend to rely on credit cards and loans to deal with financial shortfalls, as it looks like an easy option to manage any financial difficulty. At the same time, millennials to fulfill a short-term experience are willing to take loans with higher interest rates, which can escalate into a debt burden.

    The credit system enables you to spend more than you could afford extensive use of credit cards, easy access to payday loans, etc. may fulfill the need of the hour but put you under a debt trap and disrupt your financial plan.

    You need to ensure that, you are spending within your limits and not borrowing excessively. If you create a debt burden, it will end up making you live paycheck-to-paycheck. You need to maintain a balanced debt-to-income ratio. In case, you are holding any existing debts, try to pay off as early as possible and have a good credit score, which will help in times of emergency loan requirements.

  5. Investments

    The pandemic has pushed millennials to reevaluate their approach towards making investments; the Indian equity markets exhibited a good performance by recovering from the March 2020 lows and hitting all-time highs. Many millennials turned Robinhood investors are attracted to invest into mutual funds that offer higher returns with investing on your fingertips. They look for ease of access through several online applications.

    You can have access to a variety of financial products, but you must ensure that your risk tolerance, investment horizon, and financial objectives are aligned with your investments, whether they are fixed income products or mutual fund schemes.

    Under mutual funds, Systematic Investment Plan (SIP) is most favored by young investors. It offers different benefits and one of them is being light on your wallet. You could invest as low as Rs 500/- through SIP mode and builds financial discipline of investing on regular basis, even with a smaller investment amount.

    You may consider investing as early as possible to begin your journey of wealth creation and generate stable returns with the power of compounding on your investment portfolio in the long run. However, making investments without appropriate guidance and financial knowledge can prove to be a costly mistake that may jeopardize investor's wealth.

    Consult a professional financial advisor to construct a robust investment portfolio or equip yourself with the weapon of financial knowledge and become your own financial planner to achieve your envisioned financial goals.

  6. Economic indicators

    You must pay attention to the different economic indicators that have an impact on your finances and have a sense of where the economy is headed. This will assist you in making sound financial decisions and overcome the financial difficulties coming your way.

    Having said that, there are a number of economic measures that can be used to determine if the economy is expanding or contracting, including GDP, inflation, RBI monetary policy, exchange rate fluctuations, and market indices. For instance, if the economy is expanding, you may boost your savings and investments. On the other hand, if the economy contracts there will be decline in economic activities, increase in unemployment rate, lower returns, etc. so make your investment decisions considering these indicators.

    Therefore, to overcome the financial challenges you may consider implementing the above-mentioned points and enhance your money management habits. Consequently, financial literacy plays an important role in the process of financial management, millennials facing financial challenges and have low level of financial literacy will put their financial health at risk.

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Author: Mitali Dhoke

This article first appeared on PersonalFN here.

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PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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