The new year 2022 has just begun. It's natural that all of us, especially the youngsters, must still be in a joyful and holiday mood, with eyes full of last year¡¯s memories.
But as the famous saying of Oprah Winfrey goes-cheers to a new year and another chance for us to get it right. That's exactly what turns this new year into another opportunity to learn lessons and implement the resolutions taken. After all, the new year is like a fresh chapter in the book of life, waiting to be written by us.?
And what better way to do it than to begin working on not just improving your mental and physical health, but also focusing on your financial fitness! Curious enough to know how? Read on as we spread light on five common yet crucial money mistakes that harm?millennials¡¯ financial health in more ways than one.?
Why should I take insurance at such an early age? What's the hurry to get insured in my 20s when I have just begun earning? Isn't insurance meant to be taken in the later years of the 30s or 40s? What is the need for insurance? Wouldn't I be better off without insurance than to spend on ¡®high¡¯ insurance premiums?
If your mind is occupied with all these questions, then just pause and read this out.
Firstly, insurance is not an option but a necessity for each one of us, irrespective of your income, number of dependents, age, etc. In fact, the earlier you buy it, the better!
So, amidst the endless list of excuses that just add to the mayhem, what most of us millennials fail to realize is not just the importance but in fact, the benefit of taking insurance early on in our life. That's because, the more you delay, the higher the premium you end up paying. Moreover, looking at the huge covers provided by term insurance, the premium involved is on the lower side, especially when compared to other life insurance policies like ULIPs or money-back policies.?
For instance, if you take a life cover of ?50 lakh at the age of 25 to get covered till the age of, say 60 years, your annual premium would be just around ?6240, whereas the same cover till same age of 60 but taken at a later age of say, 35 years, would involve a higher premium of around ?8600.?
So, doesn't it become a prudent move to purchase life insurance as early as possible? This smart move not just fetches you lower premiums but also relieves you from the stress of leaving your loved ones in a financially vulnerable situation that can jeopardize their future in the absence of an adequate life cover amount as replacement income upon your unfortunate and untimely demise. Moreover, this is even more imperative right now as term insurance premiums are expected to spike up anytime soon.
Besides life insurance, do not forget to learn the most important lesson from this pandemic, i.e. to have adequate health insurance for yourself and your family.?
Health insurance would provide you with the much-needed assistance in dealing with sky-touching medical costs, which otherwise are capable of eradicating your lifelong savings in one go.?
Even if your employer provides health cover, it's better to not remain solely dependent on it, as that cover can turn out to be insufficient and would cease to exist once you exit that organization. So without further ado, act quickly towards purchasing adequate health insurance for yourself and your family in this new year 2022.?
All of us would agree that emergencies are an undeniable and irreversible truth of everyone¡¯s life, right? No matter what your age is, a 25-year-old or 40 year old, emergencies can strike any day, anytime, anywhere, and for anyone, with the deadly Covid-pandemic being the most recent wake-up call for all of us. The pandemic has made it crystal clear how the world can come to a standstill, which has multiple adverse impacts on our life, the most vital being the harm on income inflow.?
Even if your income inflow stops due to the arrival of exigencies, your expenses still continue to pile up, like utility bills, groceries, etc. and debt repayments like loan EMIs. Hence, it becomes an absolute necessity to create and maintain an adequate emergency fund for such rainy days. And this new year 2022 serves as the perfect opportunity to kickstart this healthy financial habit, doesn't it?
You should aim to ideally build an emergency fund amounting to at least 6 times your recurring monthly expenses like EMIs, rent, SIPs, utility bills, insurance premium, etc. In fact, you can create a larger corpus like 9-12 times your expenses, if your financial position allows you to do so. After all, the bigger your contingency day fund is, the larger the cushion you have to fall back upon!?
Despite digital payments gradually becoming the new normal in today¡¯s digital-first world, especially after the double blows of demonetization and then COVID, many of us, including youngsters, still prefer to stay away from credit cards. The reason? More often than not, it's the age-old preference for cash and debit cards, or the biased opinions or hearsays that put credit cards into the bad light. If a person falls into a credit card debt trap, is it the credit card¡¯s fault or the card user¡¯s financial indiscipline which is to be blamed? Certainly the latter.
So, the role credit cards play in your financial life, as a boon or bane, entirely depends on your usage and repayment behaviour. Discipline usage and timely repayments of credit cards would fetch you tons of benefits through features like interest-free periods, cashback, reward points, discounts, EMI facility etc. On the other hand, sloppy usage through habits like impulsive and expensive purchases that go beyond your repayment capacity, and erratic repayment behaviour is what lands you into a debt trap.
Even as we ring in the new year 2022, it's still a no-brainer that a significant section of our population, including the millennials, tends to stick to age-old sub-optimal investment options like bank FD, PPF, etc instead of unlocking the benefits of better performance through mutual funds. Blindly believing that mutual funds are risky or they blow away your money is what is often considered the root cause behind many of us¡¯ resistance from investing in them, right? What all such investors fail to realize is that it's important to understand how mutual funds work and explore the wide range of categories and schemes they offer for every kind of investor, whether risk-averse or an aggressive risk-taker.?
Also Read:?Frequently (Not) Asked Questions - How Much Tax Am I Paying On My Mutual Fund Investment?
Like, for risk-averse investors, debt funds are an ideal investment avenue for achieving short-term goals maturing in up to 1-3 years, whereas hybrid funds can be a good tool for both risk-averse and moderate risk-takers to achieve medium-term goals maturing in 3-5 years.?
As far as long term goals maturing after 5 years, equity mutual funds are the most suitable avenue, since equities as an asset class have over the past decades, been consistently outperforming both inflations as well as its peers such as PPF, NSC, NPS, ULIPs, etc. by a wide margin over the long term. However, if you lack the required knowledge or time to understand and take the right investment decisions, it's better to consult financial advisors to help you with the most suitable way out.
And that's not all! To do away with the worry of timing the market, investors can go for the SIP route of investment instead of lump sum. Plus, for those falling into taxable slabs, mutual funds have a solution in the form of ELSS funds, as these can be an optimal choice for availing the dual benefits of wealth creation and tax saving.
Also Read:?From Real Estate To PPF: Top Investment Options To Help Millennials Retire Early
The reason behind the repeated insistence on building and maintaining a good credit score is simple. This three-digit numerical representation of your creditworthiness is one of the first and crucial parameters factored in by lenders while evaluating your loan or credit card application, this holding the potential to get your application approved or rejected. What more? Many lenders have even begun risk-based pricing, wherein your loan's interest rate would depend on your credit score! The higher your credit score, the more likely you are to fetch a lower interest rate on a loan, after factoring in other parameters like income, age, loan amount, tenure, etc.
So, with such a high significance of credit score in our financial life, doesn't it become prudent to build and maintain a good credit score in order to be credit ready to take a loan or credit card whenever the need arises?? Remember, even if you believe that you do not require a loan or credit card at present or in near future, it¡¯s still a smart move to take the required steps to possess a good credit score, as the process is also not an overnight one. To know why and how to build a credit score, click here.
Also Read:?Why Your Credit Score Can Fall Despite Timely Payments!
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