Why Millennials Should Start Investing from Their First Pay Cheque

Have you noticed? Mostly the older generations have a "Save more spend less" approach towards their lifestyle, to secure your financial future and to be in pink of your financial health to manage various life events or situation like demonetisation or the recent COVID-19 pandemic. Whereas, the millennials emphasize on living to the fullest in the present moment "You live only once" type of approach, which may look delightful for now but it will misbalance your finances for future and restrict the amount you could add to your savings and investments.

Recently, my neighbour who amid the pandemic was struggling for a good job opportunity now was working at an accounting firm past one month. She came over at my place, and was all excited to tell me that she was going to receive her first ever pay cheque and the things she has planned to spend upon with the amount she receives.

While she was describing her plans, I responded, "Neha, are you going to spend all of your income and not save or invest anything from that amount?" She replied, "This is my first pay cheque I was waiting for long to enjoy spending my own earnings on the things I like and I could easily start saving from the next pay cheques"

To which I responded "You could reward yourself better only if you start saving and investing today for your future goals, this does not mean you should restrict yourself to enjoy your first pay cheque. You should just spare a certain amount aside and then spend from the balance amount in accordance to create a financial habit that can offer financial security in future."

You see, many millennials splurge as they start earning on non-essential commodities and there is a desire to live a lifestyle beyond one's means in order to keep up with the peers or the ongoing trends. This will keep you from saving and investing while leading you to recklessly spend and borrow to fulfil your immediate needs, leaving you with insufficient financial stability to survive in the times of crisis.

As you may have witnessed the uncertainty of events last year, it is critical that when you start earning, no matter how much you earn more or less, you must understand the importance of time value of money, good money management habits and creating a safety net in the form of savings, insurance and investments.

The most efficient way to inculcate this discipline of saving and investing is to build an effective habit for yourself of setting a certain amount aside from your income since your first pay cheque itself. Here are the few elements to explain you why investing since your first pay cheque is beneficial:

1. S.M.A.R.T financial goals

When you consider saving and investing for future, you must execute a goal-setting exercise at first to set your financial goals and plan accordingly to align it with the amount you decide on apportioning aside from your income. Your financials goals need to be S.M.A.R.T (Specific, Measurable, Adjustable, Realistic and Time-bound), you need to ensure the time horizon you set to achieve each goal is realistic and further prioritize them into short-term and long-term goals.

"A goal without a plan is only a dream," says Brian Tracy (a Canadian motivation speaker and self-development author). To get an idea of your cash flows, you'll need to create a financial plan with a budgeting exercise, cut non-essential expenses, limit impulsive buying, and take effective steps towards better financial growth.

If you initiate the habit of saving from your first pay cheque, it will help you set your financial goals effectively which will include creating an emergency fund as well to survive the curveballs life throws at us and to be responsible towards your finances for a better financial future at the early stage of your life.

2. Build a substantial corpus

After you have measured your financial goals, now you need to plan on achieving them and focus on wealth creation by saving and investing into various financial products. You see, only saving in a traditional way by keeping a certain amount in your savings account is not enough, in this fast pace environment filled with circumstances that puts you in an exceptional place. You need to wisely invest your hard-earned money for it to grow and benefit from the power of compounding to build a substantial corpus of you.

Investing your money productively into various financial products will help you counter inflation and maintain your purchasing power; it will also create wealth for you to achieve those envisioned financial goals.

After you've determined your financial objectives, you'll need to devise a strategy for achieving them and concentrate on wealth creation through savings and investments in a variety of financial products. You see, in this fast-paced environment filled with circumstances that put you in an exceptional position, simply saving in the traditional way by keeping a certain amount in your savings account is not enough, you must invest wisely.

If you invest smartly by planning on a long-term basis from your first pay cheque itself, it will ensure that you build a sizeable financial corpus for your future needs and maintain financial stability.

3. Create an investment portfolio

Most millennials are willing to start investing but have a limited or small amount due to the rise in medical expenses, pay-cuts and job loss in the previous year. You must be thinking to wait until you have a huge amount and then consider investing or some of you may also feel that it is too early to construct an investment portfolio and you have enough time, you could afford to do it in the next pay cheque or wait until you earn more to spare for investments.

This delay in investing is a mistake you must avoid, as it will cost harm to your a wealth-building opportunity. You must realise that your expenses will not remain constant; they will continue to rise as inflationary factors erode the value of money over time.

You don't need a huge amount to make investing worthwhile; you could start with as low as Rs 500/- a month considering the pandemic has hit many of us financially it will be difficult to take out huge amounts from your income. Invest into Systematic Investment Plan (SIP), which is a mode of investing into mutual funds in a regular and systematic manner, it will investment a certain amount as per your choice into a selected fund every month on a specified date, it is suggestable to give your pay day date.

Consequently, you could start investing in various effective financial products in various asset classes and construct a robust investment portfolio for yourself. Make sure you select worthy investment avenues, which provide better risk-adjusted returns, and it is aligned with your investment objective, risk tolerance and investment horizon. You shall allocate adequate amount of funds into various asset class to benefit from diversification remaining insulated from risk exposure and market volatilities such as the last year march lows and then markets hitting all-time high by end of 2020, also proper asset allocation is the cornerstone of investing.

4. Prevent any debt burden

As millennials try to keep up with their beyond-their-means lifestyles, they end up living paycheck to paycheck, which throws off their finances and wealth-building strategy. You won't have any money left over to save or invest, and you won't be able to build your financial portfolio this way.

With the recent financial crisis, many millennials fell prey to the debt trap of payday loans through various applications online and this increased their debt burden creating underling stress and anxiety. You could adopt various ways to reduce your debt burden if any, budgeting exercise is one of the ways you could transform your monthly cash flows; discard that spontaneous non-essential purchase, pay off credit card bills etc, and you will have a surplus left to from your income to save and invest.

If you start investing and setting a certain amount aside since your first pay cheque, you will develop a habit of doing so and spending responsibly from the beginning of your earning phase avoiding any debt burden or living on credit cards. You may follow few steps like:

• Spend less than you earn and spend only what is left after saving

• Track your expenses

• Maintain an optimal debt-to-income ratio

• Ensure investing regularly

• Automate your monthly payments, so you don't miss any due.

5. Enhance financial literacy

You may also delay your investments if you have lack of financial knowledge and you are worried you might end up investing incorrectly. Notably, there are multiple financial products, which makes it complex for a first time investor to choose from.

You will be able to invest in profitable investment avenues with the help of adequate financial knowledge and increased awareness of financial markets. Many of you consider timing the market without fully comprehending the complexities of financial planning and invest in a herd mentality; such ad-hoc investments will have an impact on your investment portfolio.

Investors used to consult a financial advisor before making any type of investment, but as time has passed, especially among millennials, they have grown accustomed to managing everything at their fingertips, and as a result, there are several investing apps that allow you to invest and build your investment portfolio at any time and from any location.

To begin investing wisely in worthwhile investment avenues, you must improve your financial literacy and maintain control over your personal finances. If you begin investing with your first paycheque, you will quickly realise the importance of being financially aware, and as you gradually increase your investment amount, you will gain sufficient financial knowledge to make informed decisions.

Having said that, it is mainly about understanding the nitty-gritty of financial planning and it is beneficial to you if start sooner. You should be able to take your financial decisions in an informed manner and help your family by guiding them in financial matters as in the times of needs and not panic with the market volatilities by becoming their "Financial Guardian".

You could become a financial guardian by enhancing your financial literacy and in case you are wondering how to empower yourself with financial knowledge,  PersonalFN's latest special initiative, the "Certified Family Guardian", offers you an exclusive opportunity to learn the finer nuances of money management.

Organised into eight modules with 24 extensive videos, the "Certified Family Guardian" will help you with all the relevant tools and learning modules needed to get better at money management and making informed financial decisions for yours and your family's secure financial health.

It also offers a host of other benefits to help you make informed investment decisions. Read here for complete details.

So, if you wish start investing from your first pay cheque and enhance your financial literacy at an early age, enrol for "Certified Family Guardian" course today!

Warm Regards,
Mitali Dhoke
Jr. Research Analyst

Join Now: PersonalFN is now on Telegram. Join FREE Today to get ‘Daily Wealth Letter’ and Exclusive Updates on Mutual Funds