Managing finances efficiently is a major milestone while growing up. Initially, when you are dependent on a guardian for all money-related issues, it doesn’t seem to be a problem. As you venture out into the real world, away from the constant protection, having money in hand and keeping track of it is of prime importance. Going by the recent trend, the present generation or millennial earns more money than before and is equally competent in throwing it away. They tend to spend whatever they earn, without giving much importance to saving. The primary reason that has been attributed to this behavior is the absence of providing money management skills, something that is not at all present in their curriculum while growing up.
It is seen as more of adult responsibility and the younger generation is kept away from it. Since this is not the scenario anymore and teenagers have lakhs of rupees in their bank accounts, a change is required in the shaping of the kids. However, it is not like the mistakes that the millennial is making are completely novel, it has been around for quite a long time. It is very important to inculcate money management skills and also avoid some common mistakes that people make resulting in squandering them. A few of those mistakes have been mentioned below.
Being unaccepting of the concepts of budgeting
The unaccepting nature mainly arises because people associate budgeting with being restrictive whereas, they are not synonymous at all. If you take the present millennial into consideration, they have more money at hand to spend but they will wrinkle their nose at the idea of budgeting. Why be frugal when you have the ability and resources to spend, is the common logical explanation that arises in their mind. Therefore, the first thing that needs to be addressed is a change in perception of marriage.
They should be educated saying that budget is not a limitation of any kind, it is just a method of tracking where you are investing your money into. This will give you a clear picture and enable you to make a decision about whether this siphoning of money is really required. If not, which avenue should be your priority in which you should invest your earnings? The unaccepting nature can be rectified only by a drastic change in the overall mentality.
Not giving enough priority to saving for post-retirement life
When you start earning at a very tender age, saving for retirement may not seem the immediate requirement. Why keep aside money for something that is going to take place almost 4-5 decades later? This is one of the gravest mistakes of the present generation but they should not be held completely responsible or tagged as impractical. The fact is the priority at that age is to repay their looming student loan taken to finance their education and also saving money for more immediate requirements like a new house, car, or any other property.
However, waiting for long in order to start saving for post-retirement may not be a very good idea primarily because it may not be enough. Experts believe that youngsters should start saving for the future from the initial stage. They can start at a lesser amount and gradually keep on increasing as the recurring expenses decrease and other priorities get fulfilled. It is more of an incremental approach that is being talked about. The saving should be as close to the amount kept aside by the company, for the same purpose, as possible.
Not being educated about taxes
It is a well-known fact that most people are not educated on the intricacies of the concept of taxes. This lack of awareness tends to disrupt the finances of many. If you do not know about the deductibles associated with student loans or the benefits of Lifetime Learning Credits, you could end up not saving a lot of potential money. Moreover, people are not aware of what to enlist in their income bracket and escape paying taxes on them.
You may feel that the part-time earning you are making by working as a part-time cab driver or waiting for a restaurant is not taxable but it is not true. Taxes are mainly based on income brackets but this income includes everything. In order to save some money by not showing all your earnings, you may get a legal notice from the Income Tax Department, something that is not desirable at all.
Not being consistent with their money management plans
Some experts feel that though youngsters are exposed to a large amount of money at an inappropriate age when they are still incapable of managing it, they are doing pretty well in that aspect, almost equivalent to their adult counterparts. What is actually spelling havoc from them is the constant shifting from one scheme to another while managing their finances. Just because a particular style has not been working for some months, it doesn’t mean that it is completely baseless and should be discarded immediately and alternatives should be looked at.
One moment someone may be following the plan charted out by a famous personality and the very next month they may be shifting to a credit card scheme. This kind of approach is not going to be beneficial in the long run. One should rather choose a scheme that is most suitable for oneself and family and stick to it for the longest time possible.
Taking the concepts of living in the moment too seriously
This problem is mostly associated with millennials. They don’t see the point in saving for something in the future when they can use that money to live a better life at the moment. It is more about collecting memories than money. It sounds all well and good until the day reality catches up and there is a sudden dire need for money. Thus, finding the right balance is important. Another concept of inflated lifestyle is damaging as well.
It means that when you have a salary hike of around 10%, you change your lifestyle according to that so that you spend 10% more than previously. Try sticking to a certain kind of lifestyle even though your remunerations are progressing in leaps and bounds.
Not having enough life insurance and emergency funds
The whole point of life insurance for someone who has people dependent on him is to secure the life of your loved ones in case something happens to you so that you can continue providing. However, people are not very enthusiastic about investing in life insurance at the starting of their careers.
This is again a bad choice. Go for a plan that is not necessarily very high cash related but which will be the most beneficial. Emergency funds kept aside usually come true during a rainy day and not keeping it may also cause unforeseen problems in the future. So saving for it should also be encouraged.
Once you make an effort to keep the above mentioned 6 points in mind, you can probably relax a little as long as your financial situation is concerned.