7 Biggest Financial Regrets of Millennials And How to Avoid Them

It is natural for millennials to splurge their salary on indulgences in the initial years of employment. Their life goals and achievements are largely influenced by peer pressure and the need to keep up with the trend.

While you are not the only one making these mistakes, before it is too late, it is crucial to inculcate financial discipline to avoid regrets in the future.

This article enumerates 7 biggest financial regrets millennials have and how you can avoid them:

1. Not preparing a financial budget:

Budgeting is the first and the most important step to leading a healthy financial life. Inculcating financial discipline will help you optimise savings and maximise returns by prudently investing in asset classes that can generate superior returns to achieve your long-term financial goals.

Hence, it is advisable to make a note of all your income and expenses. It will help if you make a separate list of all your fixed expenses, such as rent, electricity bill, commute, gas bill, groceries, etc. and discretionary expenses, such as dining out, movies, holidaying, etc. While it seems a daunting task to list out all these expenses, you can take the help of various mobile apps that make it sound interesting while giving a whole new dimension to budgeting. Seek the help of such apps and plan your salary spending wisely.

2. Not saving enough:

Many millennials admit getting stuck between 'You Only Live Once (YOLO)' and 'save for your future'. Take note that you do not have to choose between the two. These two are extremes, and it is necessary to strike a balance.

As Warren Buffett rightly says, "Don't save what is left after spending, but spend what is left after savings". No matter how big or small your paycheque is, you must instil the saving habit.

Once you have prepared your budget, you will know your expenses and how much you can save. Put that part of your salary diligently aside. You will realise that making small lifestyle changes can help you save a significant amount every month.

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3. Not starting to invest early:

While saving money plays a significant role in your financial future, it is equally important to put your money to work to achieve your goals and create wealth for you by investing it across different asset classes.

You may have short-term, medium-term, and long-term financial goals that can be achieved with a robust financial portfolio with the right asset allocation mix. Many investors make the mistake of investing aimlessly, without specific goals in mind, which later makes them regret as such aimless investments do not yield superior returns. Therefore, it is advisable to plan your goals, such as a child's education, purchasing a home, retirement, a child's wedding, etc. and invest accordingly.

A Systematic Investment Plan (SIP) route of investment is a great way to invest religiously in the interest of your long-term financial goals. Make sure you select the right mutual fund schemes by considering your risk appetite, time horizon, and investment objective. If you are unsure of how to start your investment journey or which mutual fund schemes to choose, PersonalFN's Financial Planning Service can help you achieve your goals.

4. Borrowing more than your repayment capacity:

Individuals often have pressure from their family or society to buy a car, take expensive vacations, buy a house, buy expensive gadgets or consumer durable products, etc. Many of these things can only be afforded with the help of loans. Spending a major portion of your salary on loan repayments means a high debt-to-income ratio. Ideally, your debt-to-income ratio, which compares how much you owe each month to how much you earn, should be less than 40%.

Hence, it is advisable to keep your monthly EMIs below 30% of your monthly salary. Borrowing more than what you can comfortably repay can put you in a debt trap, which later becomes challenging to come out of. If you have already opted for any credit card loans, instant loans, app-based loans, etc., it makes sense to repay them as soon as possible by opting for loan prepayment and avoid creating more debt.

5. Not buying adequate insurance:

Life is full of uncertainties, and you never know what tomorrow has in store for you. While the Covid-19 pandemic was a rough phase in everyone's life, it has been full of lessons on relationships, self-care, and financial security.

If you are the sole breadwinner of the family, at the back of your mind, you may have thought about your family's financial security in your absence. In today's fast-paced lifestyle, securing yourself and your family with adequate life insurance has become a necessity. It provides financial security to your family so that they can continue living the same lifestyle without any compromises due to the financial instability caused by the loss of an earning member.

With the rising cost of healthcare, health insurance is seeing a sharp increase in its sales. However, many individuals still think they do not need to buy a health insurance policy as their employer provides group health insurance coverage. It is important to know that corporate health insurance coverage is available to you only until you are associated with the organisation. Besides, these policies provide equal coverage to all and are not customised. If you buy an individual health insurance policy or a family floater health insurance policy, you will make sure you buy the coverage considering your needs. Unfortunately, you cannot buy health insurance when the need arises. Hence, you should purchase sufficient health insurance coverage when you are fit and healthy.

6. Recklessly using credit cards:

A credit card is a convenient tool to manage your finances as it opens a new line of credit for you. However, since you do not have to spend the actual money from your pocket, you tend to spend more than your budget, thinking you will balance it in the next month. The cycle continues, and credit card holders continue creating a debt which later becomes challenging to repay.

However, the same people would not prefer to shop if they had to pay for the same purchases in cash, which means they fall for the trap created by credit cards and spend unnecessarily to impress others. To avoid this, it is essential to limit your expenditures and try not to use credit cards as much as possible. If you think you will not have control even after setting a limit for yourself, you should set the spending limit on your credit card through net banking or by logging in to your credit card account online. The credit card will deny any spending more than the limit set by you.

7. Not saving a sufficient amount for contingencies:

Life is unpredictable, and an emergency can knock on the door at anytime. A contingency fund can help you meet up such emergency expenses without liquidating your investments made for specific goals.

Currently, when there is increased uncertainty in the job market, making a provision for contingency becomes the most important task you need to do for yourself.

While there is no thumb rule on how much should be the contingency fund, it is best to save at least 12 to 24 months of your regular monthly expenses, including loan EMIs and insurance premiums. It makes sense to sensibly figure out a sum of money that will provide you with a safety net. In a difficult phase of life, this fund will help you sail in rough seas.

To conclude:

These are the biggest financial regrets most millennials have. If you want a healthy financial future, there is no other way but to save and plan your finances prudently. Remember that planning for your future does not mean you have to sacrifice enjoying the present. But you must follow financial discipline and plan well in advance to use your hard-earned money productively.

If you are not confident about managing your money, do not hesitate to seek help from professionals who can guide you throughout your investment journey and ensure your financial goals are achieved. With PersonalFN's personalised financial planning service, you get a holistic financial plan that takes into account your current financial position and assists you in getting to where you want to be with all your financial goals.

Warm Regards,
Ketki Jadhav
Content Writer