15 best financial planning hacks every millennial should know

Being a millennial with student loans and new careers can be overwhelming. However, by making strategic financial decisions, you can secure your future. This guide offers essential tips to help millennials manage their money wisely and achieve long-term financial goals.

Gain financial literacy: Financial literacy is crucial for solid financial planning. It provides the knowledge needed to make informed decisions, avoid pitfalls, and seize opportunities. Mastering financial basics empowers individuals to achieve independence by making wise choices in saving, investing, and spending.

Recommended books

• Rich Dad Poor Dad by Robert T. Kiyosaki: Contrasts wealthy versus poor mindsets, offering wealth-building insights.
• The Intelligent Investor by Benjamin Graham: Teaches value investing principles and error prevention.
• Think and Grow Rich by Napoleon Hill: Focuses on success psychology and goal achievement for financial prosperity.

Minimise credit card usage: Credit cards can be a double-edged sword. While they offer convenience and rewards, they can also lead to a cycle of debt if not managed carefully.

The credit card cycle trap

• They create a false sense of financial security, promoting overspending.
• This can escalate into a cycle of debt with high interest payments.

Paying off balances in full

• Crucial to pay off credit card balances completely monthly.
• Helps avoid debt accumulation and boosts credit scores.

Avoiding minimum balance payments

• Never settle for paying just the minimum balance.
• High interest rates can quickly eat into savings and worsen debt.

Budgeting monthly funds: Budgeting is crucial for financial health, helping you manage income and expenses to live within your means and save for the future. If you're often short on cash before month-end, it's time to review spending habits. Creating a budget provides clarity, identifying areas to reduce spending. Categorising expenses into fixed (rent, utilities) and variable (entertainment, dining out) helps prioritise essential costs and adjust discretionary spending.

Investing 20% of income: A good rule of thumb is to invest at least 20% of your income. This habit fosters a disciplined approach to building wealth. Consider mutual funds and Systematic Investment Plans (SIPs) based on your risk appetite to diversify your portfolio.

Creating an emergency fund: An emergency fund acts as a financial safety net, protecting you from unexpected expenses and financial shocks. An emergency fund covers unforeseen expenses such as medical emergencies, car repairs, or job loss. It provides peace of mind, knowing that you have a cushion to fall back on.

• Options such as savings accounts, money market instruments, or fixed deposits are ideal for building an emergency fund.
• These choices ensure your funds remain liquid and secure, readily available for unforeseen financial needs.
• This preserves your financial stability and prevents unnecessary debt accumulation.

Managing surplus cash: Occasionally, you may find yourself with surplus cash from bonuses, tax refunds, or other windfalls. Managing this money wisely is crucial.

Handling windfall gains: Rather than spending windfall gains impulsively, consider strategic ways to utilise the money. Investing in long-term assets, paying off debt, or bolstering your emergency fund are smart choices.

Strategies for proper utilisation: Allocate a portion of the surplus for immediate enjoyment but prioritise long-term financial health. Investing in diversified portfolios or real estate can yield significant returns over time.

Planning for retirement: Retirement may seem distant, but planning for it early leverages the power of compounding, significantly enhancing your savings.

The power of compounding: Compounding allows your money to grow exponentially over time. The earlier you start investing, the more you benefit from this powerful financial principle.

Setting retirement age and expected expenses: Define your retirement age and estimate your post-retirement monthly expenses. For instance, if you plan to retire at 60 and expect to spend ₹50,000 monthly, you need to plan accordingly.

Managing debt wisely: Debt can either be a useful financial tool or a burdensome trap, depending on how it's managed.

Risks of poor debt management: Failing to manage debt wisely can lead to borrowing new loans to pay off old ones, creating a vicious cycle. This can derail your financial goals and delay important milestones like retirement.

Keeping EMI payments manageable: Ensure that your Equated Monthly Instalments (EMIs) do not exceed 30-40% of your monthly income. This keeps your debt burden manageable and leaves room for savings and investments.

Risk coverage: Proper risk coverage protects you and your family from unforeseen events, ensuring financial stability. Term insurance provides financial security to your dependents in case of your untimely death. Choose a coverage amount that reflects your financial obligations and future goals.

Choosing mediclaim for medical expenses

• Essential for covering unexpected medical costs.
• Select a plan that matches healthcare needs with comprehensive coverage options.

In conclusion, financial planning is not a one-time task but an ongoing process. By gaining financial literacy, minimising debt, budgeting effectively, and planning for the future, you can secure a stable financial future. Start implementing these tips today and watch your financial health improve over time.

Garima Tripathi, V Sahai Tripathi and Co, Chartered Accountants