Youngsters who are taking their maiden flight towards financial freedom encounter several challenges. On stepping into the financial world, they suddenly get saddled with financial responsibilities. Since they have relied on their parents too long for their financial matters, therefore, most of them don’t have much knowledge and experience to handle their finances themselves. Without further ado, let’s have a look at some of the financial problems that youngsters face and also their solutions.
Issue 1: Financial Illiteracy
Once youngsters enter the professional world, they start bearing bigger financial responsibilities. They have to face real-life challenges such as living in a new city or country, paying rent and so on. Blame it on bad parenting or poor education system, youngsters know nothing more than a few basic things about personal finance. Without proper knowledge about finance management, youngsters cannot handle these responsibilities on their own. With incomplete or no knowledge about money, they are more likely to do harm than good for themselves.
Solution: For starters, parents and even educational institutions must take initiatives to educate children early regarding money. Those who have completed their education can learn financial management themselves. One must read articles, news and discussions on topics such as budgeting, living within one’s means, managing credit and debt, savings and retirement planning. Financial literacy will help you avoid chaos and make an informed decision in future.
Issue 2: Student Debt
In India, the cost of higher education is at odds with the income of a common man. This is where the need for education loans comes. The loan helps youngsters complete their studies without trouble. But once, students graduate and start earning, repaying loan repayments become difficult. There are two major reasons for this. Firstly, lack of discipline and secondly, starting salaries are low. Resultantly, the debts keep growing. Irregular loan repayments not only bury them under debts but also dent their credit scores.
Solution: Repaying loan that too at the beginning of your career is a difficult proposition. To make things easier, don’t take any more loans. Get the longest possible tenure on your education loan to keep EMIs at a manageable size. Once your income increases, lower your loan tenure. It is needless to say but keep your expenses under check.
Issue 3: Emergencies
Financial emergencies don’t come with a warning. It can present itself in any form and at any time. Starting salaries of most youngsters are low, which leads to meagre savings. Even a single emergency situation can blow your savings off in an instant. If due to any reason you’re hospitalised, you will not get your monthly salary. Surviving the time until you resume your job will need substantial amount of money for which youngsters must always be prepared.
Solution: Fight financial, health, and other life’s uncertainties with an emergency fund. This fund helps you survive even when you don’t get your pay checks. For planning of an emergency fund, youngsters need to wisely divide their income. For starters, youngsters can aim at having 3 to 6 months of their income saved in a savings account for emergencies. Youngsters should also start estimating insurance needs. The advantage of getting insurance in a young age is that your premiums are going to be the lowest they’ll ever be.
Issue 4: Wants versus Needs
Youngsters get easily confused between what they want and what they need. Your needs are what you require essentially in your life such as clothing, food, shelter and so on. Your wants are defined by your purchasing power and therefore, are unlimited such as entertainment, exotic vacations and so on. It has been observed that the prime reason why youngsters are unable to save is because they spend heavily on their wants rather than on their needs.
Solution: It is okay to spend money on wants but these expenses if not made with careful consideration can cause dents on your financial health. We are not asking you to be harsh on yourself and not enjoy life. We are just asking you to seek your wants while controlling your finances. To do so, identify and fulfil basic needs. Also avoid discretionary spending on your wants and track your expenses. As your income increases, you can be more lenient about your wants.
Issue 5: Finding the Right Balance
To create wealth, one needs to find the right balance between saving and investing. Before finding the right balance, first understand what these two terms mean. Your savings are what remain after you meet your expenses. When you put your savings in financial instruments where your money can increase, it is called investing. It is quite difficult for youngsters due to obvious reasons to save a generous amount of money. This further implies that investing is a bigger challenge for them. Often, youngsters don’t even consider investment as an option.
Solution: Anytime is a good time to start planning your finances. Make a rule to save at least 10% to 20% from your salary for the future. Out of that money, invest a portion in an investment plan that suits you. If you’re investing in stocks, think long term and the earlier you invest the better results you will get through it.