How Millennials Can Kickstart 2022 On A Financially Strong Note

The last and most awaited month of 2021, December is finally here. Everyone's in a holiday mood, but we're also taking the time to reflect on memories that we created earlier this year. A lot has happened, and we're changed in more ways than one. And why not? After all, it's the lessons that change us, and for the better.

Do you know what can make it a perfect end to this year? Developing healthy financial habits and chalking out action points instead of making an endless list of excuses. Eager to know how? Read on to find out steps that can help you kickstart the new year 2022 on a financially strong note.

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1. Make emergency fund your lifelong partner

Emergencies are an irreversible truth of life. No matter what your age is, emergencies can arise any day, anytime and anywhere, and the COVID pandemic is the most recent wake-up call which showed how life can come to a standstill. So, to at least tackle the financial aspect of emergencies that can harm your income inflow temporarily, such as a sudden job loss or severe illness, it becomes necessary to create and maintain an adequate emergency fund for rainy days.

In case you haven't created it yet, then take this upcoming new year as an opportune time to do so, with the aim to ideally build an emergency fund amounting to at least six times your recurring monthly expenses like EMIs, rent, SIPs, utility bills, insurance premium etc. You can create a larger one like 9-12 times your expenses if your financial position allows. After all, the bigger your rainy-day fund, the larger the cushion you have to fall back upon during financial emergencies.

2. Stop assuming credit cards are the enemy

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Even in today¡¯s digital age where digital payments are the new normal, especially after the double blows of demonetization and then COVID, many people, even youngsters, tend to stay away from credit cards. If you too are amongst those who blindly believe the biased opinions or hearsay putting credit cards in a bad light, then you need to understand treating credit cards as a boon or bane in your financial life depends entirely on how you use them.

Disciplined usage and timely repayments can make you reap benefits from multiple key features like an interest-free period, cash backs, reward points, discounts, EMI facilities etc. On the other hand, sloppy usage and erratic repayment behaviour is what land you in a debt trap and deprive you of the long list of credit card benefits. So, start using credit cards in a disciplined manner and watch how they bring tons of benefits into your financial life.

3. Get life and health insurance early

"I have just started earning, it's too early to take insurance right now," is what a lot of millennials say when asked to get themselves and their loved ones insured early on. Some even designate this task to the later years of their life thinking they don't need it currently due to lower responsibilities and relatively less income. What makes everything worse is the myth that insurance is expensive.

What these millennials fail to realise is not just the importance but, in fact, the benefit of taking insurance early on in their career. That's because, the more you delay, the higher the premium you end up paying. In fact, looking at the huge covers provided by term insurance - the premium involved is very low, especially when compared to other life insurance policies.

Hence, it's absolutely necessary to ensure you purchase a term insurance cover amounting to at least 10-15 times your annual income before you step into 2022. This is even more imperative right now because term insurance premiums are expected to spike anytime soon.

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Also Read: Term Insurance Premiums To Pinch You More Soon - Here¡¯s What To Do

Besides term life insurance, it's equally important to have adequate health insurance for yourself and your family in order to get assistance in tackling medical costs. Remember that in the absence of health insurance, a single instance of hospitalisation is capable of eradicating your entire lifelong savings in one go. The pandemic has been the biggest evidence of this.

According to Deloitte¡¯s recent Global 2021 Millennial and Gen Z Survey, healthcare and disease prevention are the top-most concerns prioritised by millennials signalling how important health insurance is. Do not remain dependent on your employer¡¯s health policy, if any, as these can turn out to be insufficient and will cease to exist once you exit the organisation. So, wait no more and get health insurance for yourself and your family.

4. Start investing with whatever you have

Another commonly made excuse especially by those earning a low income or having too many existing expenses is not being able to invest due to a lack of savings. Nowadays, you can start investing in bank FDs, mutual funds SIPs, PPF etc with amounts as low as Rs 100, Rs 500 or Rs 1000. So stop making the excuse of not having enough savings, and begin investing with whatever you can! After all, every bit counts.

It's all about getting into the discipline of saving and investing. Sooner or later, you will automatically start reaping the benefits of this discipline through the power of compounding.

5. Stop running away from mutual funds

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Even though the popularity of mutual funds has been on a rise in our country, a majority of investors still restrict themselves to sub-optimal and traditional investment avenues such as PPF, fixed deposits etc., which often fail to provide inflation-adjusted returns. What all such investors fail to realize is that mutual funds have a wide range of categories and schemes, hence having something to offer for every kind of investor, whether risk-averse or an aggressive risk-taker.

Also Read: Frequently (Not) Asked Questions - How Safe Is My Money With Mutual Funds?

Like, for risk-averse investors, debt funds are an ideal investment avenue for achieving short term goals maturing in up to one to three years, whereas hybrid funds can be a good tool for both risk-averse and moderate risk-takers to achieve medium-term goals maturing in three to five years.

As far as long term goals maturing after five 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.

Moreover, to do away with the worry of timing the market, simply go for the SIP route of investment instead of a lump sum. And even 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

6. Let a good credit score help you get credit ready

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I am sure many of us must have come across this term-credit score, but aren't aware of what importance it holds in our financial lives, right? Let's simplify this for you.

Possessing a good credit score is no less than a priceless financial asset today - it has immense potential to yield not one but multiple benefits for your financial health. Whether you need a loan or credit card approval or want better interest rates and a wider range of offers, a good credit score can be your helping hand. This makes it vital for millennials to take steps towards building and maintaining a good credit score.

Even if you think that you do not require a loan or credit card at present or in near future, it¡¯s still a prudent move to remain credit ready by maintaining a high credit score. Remember, as uncertainty is the only certainty in life the need to avail loans could arise any day, and a credit score is not built overnight.

Besides exigencies, even our big-ticket life goals like owning a home and car require loans at times. Credit cards, on the other hand, assist in tackling liquidity issues and you can avail a host of associated benefits. Hence, irrespective of whether you end up requiring a loan or a credit card, possessing a good credit score makes you a preferred applicant for lenders and boosts your eligibility as well as approval chances towards the form of credit applied for.

Also Read: Why Credit Score Is Important For Millennials To Be Future Ready

7. Make equities your best friend for long-term wealth creation

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Thinking of long-term wealth creation without equity mutual funds is like sitting at the wheel of a car and knowing how to drive. Equity as an asset class holds a history of outperforming both inflation and fixed income instruments like PPF, bank FD etc. by a wide margin over the long run, which makes it the most suitable asset class for achieving long-term financial goals.

Hence, instead of making equity mutual funds your enemy by blindly believing that they are risky or lead you to losses, make them your best friend to achieve long-term goals. As far as volatility is concerned, remember that equities do tend to involve a high degree of volatility but mostly in the short term and not the long term thus making them a suitable instrument to achieve long-term wealth creation. So, chalk out your long term goals and begin investing in equity funds to sufficiently accumulate the target corpus on time.

Also Read: Makes Sense? Does It Make Sense To Cash Your Investments When The Market Crashes?

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