ALERT Personal Finance for Generation Y! The best money, finance and investing tips for getting rich and accumulating wealth in the future
Lack of financial awareness and an inadequate focus on financial health often lead millennials to procrastinate in financial decisions. Sahil Arora, Director of Paisabazaar.com, shares his knowledge on some crucial money movements millennials should make at the start of the fiscal year itself in order to achieve financial stability and security in the future.
Maintain an adequate emergency fund to deal with unforeseen demands
Maintaining an adequate emergency fund should be one of the first financial steps for millennials. Ideally, the size of their emergency fund should be at least six times unavoidable monthly expenses such as utility bills. costs, daily expenses, existing IMEs and SIPs, rent, insurance premiums, etc.
Having an adequate emergency fund would help cope with financial demands, without having to liquidate investments intended for critical financial purposes or benefit from loans at a much higher interest rate. Park your emergency fund in high yield savings accounts to allow instant withdrawals. Those who are comfortable with mobile and / or internet banking services can also invest in term deposits from regular banks that offer higher interest rates.
Prioritize the purchase of term and health insurance
Since the primary goal of purchasing a life insurance policy is to provide replacement income for dependents in the event of premature death, make sure your life insurance coverage is at least 15 times the average annual income. Prefer the purchase of term insurance policies over other life insurance products, as the former offers larger life coverage at very low premiums.
A health insurance policy reduces the financial risk arising from rising health care costs. While the employer provides health coverage as part of their group health insurance policies, these coverages are generally insufficient to cover hospital costs. In addition, this health policy provided that the employer lapses once you change organization, leaving you without health coverage until you are covered by the group health coverage provided by the new employer.
Purchasing health and term insurance policies earlier can help reduce premium expenses.
Prepare a financial plan and start investing early
A well-thought-out financial plan guides your investments and helps formulate an optimal asset allocation strategy to achieve your financial goals. Millennials should begin the financial planning process by estimating the amount needed to meet each of the financial goals, the assumed rate of return, the time horizon remaining to meet those goals, and the rate of inflation. Then use the online SIP calculators to come up with the monthly contributions needed to meet those financial goals.
Once you know the monthly SIP contribution required to meet specific goals, start investing as early as possible. The earlier you start investing, the more your investments will grow and benefit from the power of compounding.
Invest in ELSS via SIP mode to save taxes from the start of the year
Many taxpayers tend to wait until the last financial quarter or market downturns to invest in ELSS funds to save Section 80C tax. However, this may force them to buy shares at much higher NAVs in the event that there is no correction during the year and the markets also remain overvalued at the end of the year. Instead, invest in ELSS through SIP distributed throughout the year. This will help you average your investments for corrections, if any. In case of more pronounced corrections or bearish market phase, you can always top up the SIP ELSS with lump sum investments and then stop or suspend the SIP after making the targeted tax saving investment for that fiscal year.
Establish your credit score and periodically review your credit report
Having a credit score of 750 or higher increases the chances of qualifying for credit cards and loans, often at lower interest rates. Therefore, millennials should do their best to establish and maintain such credit scores. Those who are new to credit i.e. no credit history can build a strong credit rating by using credit cards and ensuring their disciplined use and bill refunds. in right time.
Those with lower credit scores can improve them by timely repaying their credit card bills and / or loan EMIs, limiting the credit utilization rate to 30%, avoiding multiple loan applications or credit card in a short period of time, maintaining a healthy credit mix, periodically monitoring collateral / co-signed loan accounts and reviewing their credit reports at regular intervals.
Get a free credit report each year from each of the four credit bureaus or visit online financial markets for free credit reports as well as free monthly updates. Report clerical errors or fraudulent transactions, if any, on your credit report to the appropriate credit bureau and lender for rectification. A corrected credit report will sport a higher credit score.