6 Money Resolutions Millennials Should Follow for a Financially Healthy 2022

Your ability to satisfy your financial needs and prepare for unanticipated financial situations is measured by your financial health. Because the stress that arises from not being in excellent financial health may easily affect your life goals. Conversely, when you are in good financial health, it's much easier to improve other areas of your life because you are not so stressed out about paying your bills and have more resources and free time to pursue your goals.

Millennials have been grappling with a variety of challenges. The dot-com bubble burst in the late 1990s was the first. Then the financial crisis of 2008 occurs, resulting in the Great Recession. We have had a few years of economic prosperity, but the pandemic has flipped the economy upside down once again in recent years.

Furthermore, the ongoing conflict between Russia and Ukraine has delayed global economic development, increased inflation, increased interest rates, etc. All of this indicates that millennials must devote careful attention to their money management skills with meticulous efforts to be prepared to weather any storm in the future.

Recently, "My cousin Ruhi was conversing with me on a call, and she said, "The first six months of the year have been great in terms of my workflow and income. I have been working as a freelancer for close to two years now. My average monthly income touched new highs this year. However, my bad spending habit remains a pain point, and ironically despite having clocked higher remunerations than ever, my financial health has been a cause for concern. Mitali, could you help me with this situation, and how shall I improve my financial health?"

To which I responded, "A higher income flow is meaningless if you spend the majority of it on your vices and temptations. Earning money isn't enough; managing money and putting it to good use is just as vital. To break the habit of spending impulsively, you'll need to concentrate on adjusting your financial resources in such a manner that needless purchases become a trickle. Yes, budgeting is crucial, but if you lack the willpower to take charge of your finances, even the most meticulously crafted budget can be blown to shreds."

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Millennials spending patterns differ fundamentally from their parents, and they place a higher value on short-term aims and experiences than on long-term ambitions. Millennials have been unfairly tarred with the label of being poor money managers, with comparisons to previous generations.  In contrast to earlier generations that have traditionally stressed saving for the future, they are not particularly motivated by the ideals of simplicity when it comes to their lifestyles.

Money management has become a struggle for many millennials due to their desire for instant gratification, new experiences, and following their passion. Furthermore, given the plethora of diversions and peer pressure this generation faces due to social media, it is much more difficult for millennials to stick to a tighter budgeting plan.

This article will cover tips for taking stock of your financial health and learning money management skills to track your financial progress, stay focused on a critical money objective, eliminate debt, and set resolutions to boost your financial wellbeing in 2022.

Here are some money resolutions that millennials can follow to maintain their financial health in 2022:

1. Budget, Save And Then Spend

We're always talking about the importance of the budget. Smart personal finance always starts with the budget, whether it's a monthly spreadsheet where you record each purchase or outflow from your account, or a budgeting application where you can track your spending in real time.

A budget can feel like a constant restriction at times, but it is an important part of financial planning and a first step towards enhancing your financial health. Understanding your spending patterns is one of the most important aspects of budgeting. While you may intend to stick to pre-determined spending limits, the majority of you are often unaware of our actual buying habits. This is usually why our savings at the end of the month are sometimes lesser than expected.

Identify big purchases and create a resolution to save enough for them. You must plan ahead of time and refrain from making impulsive decisions. Holidays, insurance premiums, school fees, gadgets, house renovations, etc., for example, should all be planned carefully to avoid impulsive spending later. Many stores utilise Buy Now, Pay Later (BNPL) schemes; however, due to high interest, you may end up paying more with this borrowing strategy. Instead, practise delayed gratification; it will aid you in making wise financial decisions.

After evaluating all the expenses, the chances are that you will find unnecessary expenses or unhealthy spending habits, which you need to avoid; the difference between your paycheque and those monthly expenses is your savings. You can set up automatic deductions so that the money is taken out of your account before you even see it. This is a great way to 'trick' yourself into savings.

2. Strengthen Emergency Funds

The last two years have shown us the importance of savings and a nest egg that can help you survive through these unforeseen events. An emergency fund is designed to provide us with a financial fallback in case of an adverse event, such as a sudden loss of income. Loss of income or sudden expenses, which can also include big unplanned expenses, such as medical emergencies, will not only impact your overall lifestyle it can also put your investments at risk. In case you fail to make timely payments, you may be forced to cash in some of the investments in order to meet your liabilities.

An emergency fund is meant to cover all these expenses in the short term. Ideally, it should hold 12-24 months of monthly expenses, including loan EMIs. For millennials, their liabilities can often increase with age as they plan to achieve their future goals. To avoid overspending from the fund, it is best to park it in a separate savings account, especially if the fund is fairly small. For a sizable fund, it's best to invest in liquid funds such as debt mutual funds, where your money can grow while still allowing you to cash in your assets when required quickly.

3. Buy an Adequate Insurance Cover

COVID-19 is still around us. Most millennials have been relying only on group insurance from their employer. Millennials don't take much interest in insurance products and deem them unnecessary, considering their youth. Whatever the reasoning, we have all found how risky it can be to play the odds without being insured. Taking care of yourself and your loved ones in unforeseen circumstances is necessary. Not only does an adequate insurance cover indemnifies your risk to life and health, but it also saves you money in the long run since rising medical costs may burn a hole in your wallet and can eat into your savings, setting you back by months.

There are a variety of insurance policies available in the market; you may choose as per your suitability. As a millennial, you may first research carefully through available wide sources of information on the internet. Opt for Family Floater Health Insurance as it suits a young couple with kids. Get a life cover which is best met through a Term Insurance Plan.

Alternatively, if you already hold an insurance cover, reassess whether the existing health insurance is sufficient for the family and dependents.

4. Create a Debt Elimination Plan

A debt may seem like a heavy burden, but it is often a necessary part of our modern life. Millennials tend to have student loans that they borrowed for higher studies or some personal loans to fulfil their financial obligations. However, some millennials have also fallen into the trap of instant loans, borrowing through lending apps, which has created an enormous debt burden due to high-interest rate charges.

Given that, it's always better to know your debts and plan your budget accordingly to reduce these debt burdens. Prioritise your debt as per the interest rates. It's always best to pay off high-interest debts first. However, low or no interest debts can be paid as per the schedule and may help you manage your finances in a more planned manner. Maintain a debt-to-income ratio of 40% or below.

If you had taken a loan moratorium in the year 2020 and now your cash flow allows you to prepay part of this loan, then make a resolution to reduce this debt without affecting other financial goals. Reviewing your debts and payments is a necessary money resolution to be in pink of your financial health.

5. Manage Your Investments Wisely

One of the safest ways to ensure sufficient cash flow for savings or investments is to automate them, and it can be all the more useful for those who spend more than they should. Budgeting can help clarify your spending patterns and how much you should be investing monthly, quarterly, half-yearly, or annually in your portfolio.

Automating your savings becomes even more important for investments that may not seem significant now but are necessary for the long-run. This includes investing in a retirement fund in your 20s or 30s or in Health Insurance when you are young and fit. You can set up automatic transfers in sync with your income cycle to ensure that these allocations are made as soon as you have sufficient funds in your account. It ensures that you have an explicit limitation on your spending potential; it helps you maintain financial discipline.

How diverse is your portfolio? You need to maintain a well-diversified portfolio that invests across various asset classes to generate better risk-adjusted returns in several market phases.

For instance, the growth of start-ups and the flow of investment in the digital economy can help you expand your portfolio by including mutual fund schemes focused on future-oriented themes. Similarly, you can look at expanding to different markets, such as the US, not to limit your exposure to a single economy. It can also help you avoid the impact of the rupee's depreciation.

Therefore, millennials need to invest wisely in worthy avenues as per their suitability based on their risk profile, investment horizon, and objectives. Please do not fall prey to the herd mentality, as it may lead to making hasty decisions that could impact your financial health. Millennials usually have easy access when it comes to investing; they simply avail market information and invest online through fintech apps and web portals. Always ensure to do thorough research before investing and any financial avenues and not get swayed away just by past returns.

6. Dedicate a Day Just for Your Finances

From monitoring your investments and deploying surplus amounts to accounting for your expenses and checking your credit report, your financial health requires periodic attention. Keep a day aside from your schedule for your finances, whether monthly, quarterly, semi-annually or annually. Jot down all the financial tasks in a diary/excel worksheet. This way, you will have a focused approach, and the chances of your money resolutions getting neglected go down.

Close scrutiny helps uncover gaps. Spend some time to understand your bank statement and credit card statement in a month. Make a resolution to monitor your credit report and credit score at least once a year. Individuals having a score of 750 or more get the best credit terms. Analyse your expenses and bank charges. If something is not right, then seek help from your bank.

It is also important to review your investments periodically and align them with the prevailing market conditions to avoid or reduce any losses. A simplified investment portfolio also eases the tax-filing process at the end of the year; periodic review will help maintain a disciplined portfolio.

To conclude...

Strong financial health has a direct impact on your well-being, and it can help you meet your essential and non-essential needs, explore your potential to the full, and allow you to lead a life on your own terms. With the current challenging environment, millennials have already realised that they need to take control of their finances. We live in a time when everyone has unparalleled access to information and the tools they need to understand and leverage their financial resources. Use these money resolutions to gain a better understanding of your financial situation, develop safety nets, reduce debt, and make wise financial decisions in the future.

As a result, in order to have a financially healthy year ahead, millennials must become financially empowered and agile by implementing these money resolutions. Finally, make 2022 the year in which you seek to improve your financial literacy. The first step toward learning about money and how it works is to become financially literate. You can now get expert help in managing your finances through a variety of platforms, both digital and professional.

Millennials should invest in their future and attain financial literacy to maintain good financial health effectively. Financial literacy will assist you in being prepared for any financial challenges in the future and assist you in becoming a financial guardian for your family to make informed financial decisions.

Financial literacy is an important life skill that allows you to understand the basics of investment and financial planning. If you are financially savvy as a millennial, you can make informed financial decisions in the future to maintain your financial stability and prevent any impact on your financial health.

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Warm Regards,
Mitali Dhoke
Jr. Research Analyst