Every generation has its unique lifestyle choices which determine their spending and money management habits. The earlier generations lived by the credo “save rather than spend” and “save for a rainy day”. Frugality and thrift were the guiding principles of their lives. However, there has been a marked shift in the spending habits of the millennial generation—those born between 1980 and 2000.
The “you only live once” (YOLO) mindset is fast becoming a tipping point for millennials. This is a generation that believes in living life in the fast lane. Rather than creating a budget which can help them track their expenditure, they live from paycheck to paycheck, which can lead to enhanced financial stress. The unchecked need to pursue an extravagant lifestyle has led them on the path of reckless spending and unhinged borrowing. Living beyond their means can lead millennials to fall in a never-ending borrow-and-spend cycle, hurtling them on a path of vicious debt spiral. The situation can reach an untenable stage where servicing debt commitments may become unsustainable. The term “financial security” and “investment planning” is virtually absent from the lexicon of new-age spenders who want instant gratification from unintended purchases to unplanned trips. It is here that they need to inculcate the “you also grow old” (YOGO) mindset, set their financial priorities right in their 20s and 30s and start planning from the day they get their first paycheck.
This is also a generation which most likely will live longer and would like to retire early. They will need to understand that expenses will never remain static and will only grow higher as inflationary pressures erode the value of money. In such cases, it makes sense to note that their earnings and savings need to outlast their life to take care of their expenses in the post-retirement phase. A basic step in ensuring higher level of savings and income is to track expenses judiciously through the use of apps or spreadsheets. This will not only help millennial spenders get financially organized but also regain control of their money and finances. Smart investment and savings planning on a long-term basis will ensure that the millennial generation builds a sizeable financial corpus to take care of their post-retirement needs.
We must also note that understanding one’s risk tolerance, which can swing from conservative to aggressive, can play a key role in making sound long-term investment strategies. The next step is to earmark financial goals at every stage of life and allocate the necessary resources to ensure the attainment of the goals. Deviating from its theme of instant gratification, members of the millennial generation should also set aside a part of their earnings in income-generating asset classes to earn guaranteed returns over a period of time. Care needs to be taken to ensure that all eggs are not parked in a single investment basket. Millennial investors will need to follow the thumb rule of diversifying their investment portfolio across varied asset classes to remain insulated from risk exposure to market volatilities.
Millennial spenders should not make debt and living on credit cards a normal way of life. They need to realize the importance of having a safety net in the form of savings, insurance and investments to take care of them and their dependants in their twilight years. The key here is to take control of one’s finances, not be swayed by instant temptations and deploy new age-money management skills to build an independent financial future.
Rajesh Narain Gupta, managing partner, SNG & Partners