Nine tips for Gen Z for a secure financial future

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From keeping money in bank accounts to simple investment instruments to technology driven investments, India has undergone a marked transformation in the investment space. This demands for making informed investment decisions.

Gen Zers include everyone who are born between 1997 to 2012. It is easier for them to adopt new technology driven investing as technology has defined their lives from birth. The digitization in investing space is the driving force for easy and low-cost access to investing.

With the expeditious change from parking money in bank accounts to paperless investing, it has become challenging to middle aged people to stay abreast with use of technology. This change also summons Gen Z to stay updated with the investment landscape to manage their personal finances so that they can succeed in using Do It Yourself (DIY) financial path.

Here are nine tips for Gen Zers to secure their financial future:

Budgeting

It is a very important step to take while planning your finances. How would you know where your money is going if you skip budgeting? Budgeting helps in setting savings goals. Let us take an example: You are getting a stipend from an internship of say Rs 7000 a month. Now from this, set a savings goal. Say you will save Rs 2000 every month. The rest can be used to cover your frugal expenses or things that you really want. These savings of Rs 2000 can go a long way if invested in a right way. It helps to build a successful financial future.

Have a savings plan

There is a joy in receiving your first salary and it is very precious. Gen Zers should have a plan for savings. They should identify their needs and wants and then decide how much they want to spend. This will build a habit of saving a part of the salary on regular basis and it also help to control emotions that would stop them from overspending.

Start early investing

All of us have dreams such as going on an abroad trip or buying a car, which we want to fulfill. Let us say that you want to buy a car in 7 years. Assuming 12% return from a mutual fund, if you invest Rs 5,000 per month for 7 years, you would have earned Rs 6.5 lakh. However, if you start investing for the same goal 2 years later, you’ll have 5 years to invest. With the same investment amount, at the end of 5 years, you’ll have a corpus of around 4.08 lakh. Early investing ensures that goals are achieved in timely manner. Starting early also lets you enjoy the benefit of compounding and take high risks because of less financial burden at an early age.

Building an emergency fund

Emergency funds are investments that can be used in case of contingencies. Covid-19 has taught us the importance of having cash on hand in unexpected circumstances. Emergency fund is a safety net for unexpected and unplanned expenses such as car repairs, broken phone or visiting doctor for high fever. Emergency funds should have 3-6 months of your living expenses. One can start investing in liquid funds or short-term debt funds through SIPs earmarked to address financial emergencies. This kind of investment should have high liquidity so that one can use the money whenever needed.

Invest in direct mutual funds

Investing in direct mutual funds mean that there is no trail commission to be paid. Saving on commission gives you up to 1.5% extra returns on your mutual fund investments.

Don’t put all eggs in one basket

No one knows what is going to happen next in the world of investing. One industry might perform well and other might not, what is buzzing today might become obsolete tomorrow, so diversification in investments is a great strategy to earn good returns.

Start an SIP

Setting up a monthly SIP of as low as Rs 500 is a great way to start investing. SIP inculcates the habit of investing regularly and also brings in the benefit of compounding and rupee cost averaging. It is also recommended to invest for long period of time.

Take advice from financial advisor

If you are confused where to invest and when to invest, it is advisable to seek professional guidance. You have to take a look at your risk tolerance level, age and goals before deciding which investment avenue to pick or even deciding which fund/share to invest in. If a mutual fund has worked well for your friend, it is not necessary that it might work the same for you.

Simplify your finances with technology

Technology has made investing simpler. The way people are investing has changed tremendously over the years as now you can make investments at just a click of the button. With digital investing, all your investments remain at one place and so it becomes very convenient to track the performance of your investment. Whether you are making a new investment, adding to an existing one or completing KYC formalities, technology makes it smooth and easy.

Conclusion

Gen Zers using technology should use it prudently which suggests that they should put their money to right use by tapping on investing app on their phone instead of tapping on shopping apps. One should also figure out how much money they don’t need for a long time which can be used for investing. These tips here are for you to build money habits.

(The author is Co-founder at Tarrakki. Views expressed are personal.)