Generation Y or commonly referred to as millennials are people born between 1981 and 1996. Millennials are well educated and financially independent but are quite unacquainted when the question ‘how to plan finance?’ arises. Millennials are crucial and responsible for driving national growth of any country. A report from Morgan Stanley states that they can influence and redefine the financial structure of India. Millennials contribute to 47% of India’s workforce which is a significant portion that can easily impact Indian economic growth.
Millennials are different from the preceding generations and have different priorities and life experiences. Financial goals for millennials differ from the preceding generation. They often spend recklessly which leaves them broken at the month-end. Many millennials either don’t save or prefer old school financial planning like buying insurance policies to save taxes. Good financial health is needed to stay afloat during an unprecedented financial crisis. The ongoing pandemic is one of the best examples for millennials to know why financial planning is crucial. Saving money is significant but investing helps grow money. You need to start financial planning and exercise money-saving habits which will eventually cover you in difficult situations like COVID-19.
Due to the lockdown millennials are aware of the financial situations that can alter life completely. Millennials have a different perception of financial planning and now started knowing its significance. Overnight layoffs and pay cuts have made them revisit their financial decisions. Lockdown has made millennials look for innovative investment strategies. Before we get deep into it let us understand the significance of financial and investment planning.
Life is unpredictable and it can throw you off track overnight. It is necessary to have a better financial understanding to safeguard yourself in situations like these. Millennials are financially independent and proper investment strategies will help manage all the hard earned money. Besides regular income investments can majorly increase the cash flow. With proper financial planning, you can safeguard the financial well-being of your family. The corpus you create after proper investment will keep you afloat in critical times.
Let us understand how to create an investment portfolio and various strategies for financial and investment planning.
Mutual funds are quite popular amongst the millennials and tax saving mutual funds are just another type of mutual fund. As the name suggests these mutual funds offer tax benefits to the investors. Investors investing in these types of funds can get tax benefits of up to 1.5 lakh. You can invest a small portion of your monthly income through SIPs for the long term. The investment portfolio is diversified to minimize risk factors and losses. People with little market knowledge can invest in these funds with the help of fund managers. These funds have the lock-in of 3 years and if don’t withdraw you can grow your fund and create a huge corpus.
Public provident fund is a long term investment scheme and is popular wish high returns but low risk. PPF has a lock-in period of 15 years and is backed by the government which ensures guaranteed returns. After this lock-in period ends, investors can still extend the lock-in period up to 5 years. You are also eligible for loans against the amount invested in PPF. The capital gains earned in PPF is exempted from any tax charges as it falls under EEE tax status.
The emergency fund is quite self-explanatory, these are the funds that safeguards you during the financial crisis caused due to various reasons. An emergency fund is a corpus created for unforeseen emergencies like losing a job, medical emergency, sudden home renovation plans, and so on. There are no definite rules on how much you should keep aside for the emergency fund. Identify your needs and wants and start investing in emergency funds. You can also convert tax refunds into savings by reinvesting them in emergency funds.
Life insurance offers the investor non-taxable gains at the time of maturity. With corpus created using life insurance, you can cover your loans, child’s education or wedding expenses, mortgage, etc. Life insurance is accompanied with low risks and hence is one of the popular investment options. If you start investing in life insurance when you are younger you’ll have to pay lower premiums. With life insurance, you can create a safety net when you fall back due to an unforeseen financial crisis. You can achieve long term goals you may plan for the later stage of your life.
You can invest in various retirement schemes like bank fixed deposits, immediate annuities, etc. Bank fixed deposits offer safe and stable returns to the retirees. The only major drawback of fixed deposits is the falling rate of interest. Bank deposits offer flexible tenure and tax-saving benefits as well. There are different immediate annuities available for retirees. The life insurance company gets the money from the investor in a lump sum and then returns to the investor as a regular payment for life. This way you can plan your retirement and set retirement income goals and following them with the actions necessary to achieve those same goals.
All types of investments are accompanied by risks but letting your cash pile up has its own risk. With letting your money pile up you may lose the power to purchase due to inflation. As risk is everywhere you need to start investing wisely. You need to understand the power of compounding and with proper investment strategies, you can grow your wealth. This is why you need to start investing as early as possible. If you start investing early you have a lot of time on your hands and you can withstand the harsh market situations.
The bottom line is to start saving and investing your money to achieve your short term or long term financial goals. You can decide for yourself how much you can save and stick to it every month. How to do financial planning can be a daunting question but prepares you for a difficult tomorrow.
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