For most youngsters like you in your twenties; experiencing and enjoying new-found life with friends partying, splurging on food and wine, gifts, gadgets, late nights and lifestyle is where the ‘highs’ of life lay.
And why not! There is a different level of adrenaline and dopamine rush to go for it more and more.
Life’s motto for most in your 20s is to ‘work hard and party harder’. Years go by without a care in the world as the money keeps flowing in to feed your wish-list of instant gratification.
Financial planning is generally not on the list of priorities for you.
It is only when you get to know from your sources that one or two of your bum-chums have become millionaires by the time they are in their late 20s or early 30s, that makes you derisive as the news seems to be a ridiculous surprise.
That is perhaps when the alarm rings in your mind and you start thinking as to where you went wrong when all were hanging in there together till yesterday.
How is it that few peers and kins are now successful and wealthy youngsters when you are still stuck in a rut with a job you enjoy or perhaps don’t and have not progressed much in your career or in money matters?
The good news is that it is not too late and you still have time. Suggest you change your mindset from ‘being derisive to being curious’ to learn and understand what your kins or bum-chums did differently to become money-wise successful early in life.
In this article today, we will focus our efforts to detail the 7 money practices that help youngsters become millionaires earlier in life which millionaire friends do not speak about.
Practice #1:
1) They budget their expenses:
Most millionaires are known to live well below their actual affordability – to the extent that you might doubt their millionaire status.
There are a large number of them who live in their ancestral homes, drive their family car, shop at thrifty Kirana/ departmental stores – looking for best deals, watching out for online deals and eating out on special occasions only.
This makes sense. Doesn’t it? None of the first-generation millionaires you see today or from earlier days, have been heard to have grown rich by spending money.
They have learnt their money lessons well ahead in life and saving and investments are things they would swear by.
These habits are worked on and developed for years and they would not barter it for any amount of luring towards anything on earth.
Mistakes Millennials make:
While a millionaire saves first and then spends, youngsters like you do the opposite. They spend first and save whatever is leftover. If you too are making this mistake, know that you aren’t alone.
Most Millennials are found to push their budgets till they are broke. They exhaust their salaries by mid-month and use credit cards to see them through the remaining days.
Most are found to fall prey to revolving credit as they would have no clue on the interest charged on your cards, nor would you know your due dates!
Investment lesson learnt:
Make a monthly budget. Draw an excel sheet with a detailed list of monthly earnings and expenditures for every month.
Your monthly expenses ideally should consist of repayment of education loan, living expenses including rent, groceries, utility bills, local conveyance, medicines and miscellaneous expenses.
Ideally, your miscellaneous expenses must be restricted to a lower percentage of your living expenses, rent and loan repayment combined.
However, if it is otherwise, you need to take a hard look at how you can make adjustments to cut costs as the first step to financial planning.
For example, some millennials love to begin their workday with a Cappuccino from Starbucks that costs INR 300. With 22 working days in a month, it adds up to INR 6,600 monthly expense!
If you stick to this habit for 30 years, your opportunity cost lost will stand at INR 11.40 lakhs. Surprised? This is because just INR 500 rupees monthly investment in a systematic investment plan (SIP) for 30 years could earn you INR 11.40 lakhs return at a modest 10% compounded annual return.
Whereas you can make your favourite cappuccino at home for just about INR 7 a day!
In fact, if you are yet to get married and shoulder minimal financial responsibility at home, then you should follow the 50:30:20 rule on your take-home salary for effective money management.
Here is the breakdown for you –
- 50% of the money should go into loan repayment, rent, utility bills
- 30% into savings and investments
- 20% on discretionary spending as desired
Practice #2:
2) They pay off debts aggressively
All young millionaires around you know that you pay as high as 40% interest on your credit cards in India.
No legal investment gives you this high returns on your money!
Your educational loan too does not come cheap. The interest rate hovers around 10% and 14%.
Thus they pay off their debts aggressively. This is because money saved on interest is money made.
Mistake Millennials make:
Most of you love flashing your credit and debit cards when partying with friends.
Middle of the month when your pockets run dry due to high lifestyle expenses, it is this plastic money that helps you fulfil your desires.
This leads you to live beyond your means and you like most of the youngsters get into the vicious debt trap laid by the banks.
And you keep wondering that though you are paying your ‘minimum amount due’ every month, why is the actual amount due not going down?
Maybe you are also borrowing money from your successful friends too – thus increasing your burden of debt.
All these and more eat into your disposable income which you could have fruitfully invested towards your wealth creation.
Investment lesson learnt:
Arrange to aggressively pay off your debts/ loans.
Few steps to follow –
- Take a stock of your total outstanding debt in the market.
- Check for the balance overdue and interest rate for each credit card
- Take a stock of outstanding loans in the market like educational and personal loans
- Check their interest rate and term
- If required use a Debt Pay-off Calculator freely available on the internet to see by when all your debts will end.
- Give the banks auto-debit mandate basis calculations on point no. 3 for clearing all possible debts at the earliest date stipulated by the calculator.
- Stop using the cards for the time being. Revisit your budget vs. expense sheet to check where you can cut your expenses without majorly harming your living for the month.
- As and when you receive and extra income in the form of gift money, incentives, bonus, extra income from some source, interest on the maturity of fixed deposits, etc., ensure you use the whole money to check for any outstanding debt anywhere and use it to pay it off for good and also divert some amount to create an emergency fund and other important goals.
Remember interest saved is equal to money made. This will increase your disposable income.
Also remember that outstanding credit or EMIs missed or failed to pay off debts, etc.; all add up to your bad ‘credit score’ which will act as a deterrent when/if you wish to avail of any loans, like a home loan, even years down the line.
Next steps:
- Keep a maximum of 1 or 2 credit cards. Use only 1 of them. Keep the other away for emergencies only.
- Set a reminder on your mobile phone/ desktop calendar for you to ensure you pay off the total outstanding for the month at one go on or before the due date.
- Use the credit card for payments only in an emergency or when on business travel.
- Use cash to make your payments most of the time. Hard cash going out of your hand has a psychological impact on making you cautious of the money spent.
This is one of the most important money lessons for any youngster like you.
Practice #3:
3) They have done their financial planning
All ‘financially successful’ youngsters in their 20s you see around you; know their financial needs and goals to ensure effective money management.
They have done this with the help of professionals who are adept at financial planning for beginners.
Once the financial planning is done; there are enough options of investment for beginners to choose from best suited to achieve their financial dreams.
Hence efficient allocation of funds following the 50:30:20 rule can easily be achieved to cater to all needs with élan. And they can peacefully devote their time and energy to work for career development and growth.
Mistake Millennials make:
For the large number of youngsters in their 20s, financial planning seldom features in their priority list.
Realisation perhaps dawns only when they face untimely personal exigencies like death or disease of the earning parent(s) or in the face of their marriage when they suddenly realise they need to shoulder all financial responsibilities of the family going forward.
They are seen to grapple with things having lost their peace of mind.
Investment lesson learnt:
Procrastinating financial planning leaves your dreams for the future compromised and you will not live enough to regret it. To complete your financial planning today.
To plan your finances best suited to your needs, you will need to assess and consider various parameters ranging from your age, financial dreams/ responsibilities, life stage, time to maturity, investment capacity, risk appetite, etc.
Yes, we agree that financial planning for beginners can look confusing at the beginning.
Thus we urge you to take a quick financial planning course at Koppr to get empowered with the required knowledge on the subject.
In case you need further clarification, feel free to connect with our experienced team at Koppr.
Practice #4:
4) They started investing early towards their financial goals
Successful millennials make choices differently compared to their peers. Instead of spending mindlessly on things of little value, they choose to embark on their journey into investments for beginners early in life to become millionaires by the time they are in their 30s.
They learn about the financial planning for millennials and make equity and equity-related vehicles their best friends to invest in. This is simply because you have time on your side. And time is money.
Time has the power to compound money and make it grow exponentially in the long run.
Mistake Millennials make:
Most youngsters like you are found to either be scared to invest, remain in two minds or invest too little.
Even if you manage to overcome the unreasonable fear of the equity market and have designed a nice investment portfolio, if you do not save/ invest enough; going along with your dream to become a millionaire will remain unfulfilled for sure.
After all, ‘a penny saved is worth more than a penny earned.’ There are many high earning people around who still struggle with their money and lack even a decent bank balance.
Again there are many who have been known to have accumulated a decent amount of wealth with just good income levels.
Investment lesson learnt:
Procrastination has many perils you won’t live enough to regret. So start investing today.
Even if you begin with tiny amounts, you will be surprised by the substantial wealth you have created over a period of time.
This will any day be phenomenally greater than never to have started investment at all. Let us take an example for a better understanding.
Example: Say you wish to accumulate INR 2 crores by the time you are 60 years old; i.e. 35 years from now. You have 2 options with you.
Option 1:
Starting at 25 with a modest 10% compounded annual return you will need a monthly investment of only INR 5500 to achieve your dream INR 2.11 crores wealth in your account (with a total investment of INR 23, 10,000 over 35 years).
Option 2: But if you start saving say at 30, with the same 10% compounded annual return you will need a monthly commitment of INR 9500 for 30 years to achieve the same dream amount INR 2.17 crores (with a total investment of INR 34, 20,000).
Thus the cost of waiting for just 5 years will cost you INR 9, 10,000 (39% more) to achieve the same targeted wealth!
This is an example of the magic of the power of compounding when you have time on your side. Worried about your opportunity cost lost?
Get in touch with your personal financial planner by downloading the Koppr App and start your investments today to maximise your wealth too!
Practice #5:
5) They have secured their basic needs
Even before you commence your financial planning, you must first secure your life for your family members with health insurance and a term life insurance cover.
Your successful friends are aware that any insurance policy; whether it is on health or life, comes really cheap when you are younger and enjoy sound health.
These assets get costlier with age and deteriorating health.
Ever rising costs of medical treatment and rising uncertainties of life in terms of death, disease and disability; make a health insurance policy for self/ family and an adequate life term over on self absolute must help to ease the financial burden in the face of exigencies.
Mistake Millennials make:
Most of the youngsters in their 20s feel that you are too young to consider a health and life cover for yourselves.
In fact, you realise the need very late in life when either you see a family member/ friend suffer financially for the want of money due to the untimely death of the bread earner, or when you face financial crisis in the face of medical exigencies for yourselves.
Worse case scenarios observed today are that realisation dawns when millennials in their mid-30s have become obese and/ or developed some lifestyle a disease that makes purchases of a health and life insurance policy really expensive in your pockets.
Sometimes insurance is also denied for diseases you harbour! Have you measured your opportunity cost of waiting too long?
Buy unbiased health insurance to secure you and your loved once from Koppr
Investment lesson learnt:
If you have realised the opportunity cost of not covering these basic needs, consult your financial planner today on Koppr App and get the best-suited plan for health and life insurance, without any further delay.
This would make you a responsible and respected youngster who stands tall to protect your loved ones financially in the face of health and life exigencies in future if any.
Practice #6:
6) They use tax-savers to the maximum limit:
Young millionaires are known to be prudent enough to understand and maximise usage of tax-saving instruments to the maximum limit to optimise their returns.
They understand that tax saved is money earned.
Hence you will see that their EPF, PPF and NPS accounts are optimally fed to build their long term retirement tax-free/ efficient corpus. These investment options are also known to yield the highest interest among debt instruments.
They also optimise their 80C and 80D tax benefits with investments in Equity Linked Saving Schemes and Health Insurance plans respectively, repayment of interest on Education loans gets them to benefit u/s 80E, and interest on home loans u/s 24, among others.
Mistake Millennials make:
Youngsters in their 20s like you are known to be impatient and mostly lack interest in learning about avenues to save maximum tax to optimise returns even on debt instruments and/ or assets they can invest in.
Investment lesson learnt:
Talk to your HR and/ or your financial advisor and learn all the ways and means you can use in a financial year to save the maximum amount of tax and optimise your returns.
Practice #7:
7) They are always in search of avenues of extra income
Your successful friends have an insatiable thirst for alternate sources of income to add to their earnings and wealth creation.
They pick up weekend consulting assignments, contractual projects, and/ or work gaining an audience in the areas of their expertise on social media by sharing knowledge/ skills. Yes, ‘Audience’ is the new currency today.
To be able to have a sizable audience on social media as an influencer by captivating people’s attention gives them the ability to generate sustainable income. This empowers them to even ‘make money while they sleep.’
Mistake Millennials make:
While most Millennials are energetic about the work they do, they may not be diligent or persevering in nature in most cases.
Most get swayed into ‘work hard-party harder mode’ – thus losing out on the opportunity or the willingness to put in the extra effort to use their knowledge and skills to generate extra income.
Investment lesson learnt:
Opportunities and scope are endless for the youngsters with the right attitude/ intent, knowledge and skillsets.
You just need to open your horizons and find out those avenues of making more