In the world of YOLO and ‘Buy Now, Pay Later,’ savings has become an important yet the most ignored habit of millennials and Gen-Z. Piling credit card bills, extravagant lifestyles, and the pattern of impulse buying eventually lead to a debt trap. The leading cause starts from the root- lack of financial literacy. Though financial literacy is a broad term, one needs to learn about basics like savings, budgeting, and investments. We do have the internet and plenty of information available online to learn and become financially literate. But for now, let us focus on budgeting for millennials and see how it can help them manage their finances better.
What does budgeting mean to millennials?
We are the generation of YOLO, so it is comparatively difficult for us. The distracting advertisement to buy your favorite outfit on social media or notifications from that food delivery apps makes the road to improving economic management more slippery. So, budgeting is a tricky affair for millennials. According to most millennials, budgeting means long lists, expense tracking, and writing everything down, which seem tiresome and monotonous to them.
Is budgeting important?
Well, if you are making a limited amount every month, have bills to pay, responsibilities to manage your lifestyle, and a plan to become financially sound at one point in your life, then budgeting is essential!
We know it is difficult for most millennials to budget, so we have a few mantras to help you get started with your budget.
Focus on your NEEDS first
Yes, we get it, most of us love shopping, but the first rule of budgeting is to focus on your needs. And when we talk about needs- we talk about being able to pay for your basic food, shelter, and clothes. So make sure that you put a number in front of all your needs and count it in.
Budget the bill
Bills are no less than needs, from utilities to monthly subscriptions. So make it a point to add them to your budget. Add all the relevant accounts and subscriptions like electricity, phone, newspaper, magazine, and more. Your bills can take a significant chunk of your monthly income, so make sure that you keep a check on them.
Deal with debt
The ideal debt to income ratio is 20-35%. If you do not know how to calculate your debt-to-income ratio, divide your monthly debt by total income multiply it by 100. So, write down all your debts makes a strategy to reduce your debt. There are various strategies to reduce your debt, like the avalanche method or snowball method.
First step toward financial safety- Save & Invest
A financial safety net helps one to become financially independent. Make sure that you take out some amount from your income- save it or invest it. Saving and investment should be in your plan to reach your goals. You can start small by putting 5-10% of your income in savings. Then, read up on investment plans and invest as per your goals.
Budgeting means upgrading
The good thing here is that budget is alterable. You can make changes at your convenience. You can assign a different amount to various categories. For example, you are saving 10% of your income in one month; you can save 20% the next month. Similarly, one month you are might be spending 15% of your income on bills, and the following month it might be less. So, the decision is in your hand. Again, you can alter and make amends at your convenience.
So, get budgeting and start working towards your financial goals. The most important part is to know your plans and goals. Once you list down your goals, you can make a strategy and work on them.