A Thousand Mile Road Begins With A Single Step

Saving has been a tough decision for most, more so for the current generation. The members of Gen Z and late millennials are now the youngest employees in the workforce. As they venture into their professional careers, many are failing to prioritise on a key aspect of their finance– savings and investment.

According to a report by Deloitte, millennials and Gen Z save less than what they spend on their lifestyle and this is less than 10 per cent  of their income.

This generation spends most on monthly essentials followed by education and utilities. Any additional income is spent towards dining out and entertainment, apparel and accessories, electronics, travel and so on - basically experiences. Out of the total income including incremental income, saving holds only 10 per cent share in it. This indicates a shift towards a consumption economy rather than a savings economy, which was a predominant feature of the preceding demographic cohort.

Warren Buffet’s golden advice on wealth management is ‘Do not save what is left after spending but spend what is left after saving.’ But it appears that this generation has a different philosophy to follow.

The young members of the workforce differ from their previous generations, Gen X or Baby Boomers as they are preferably called, by their lifestyle choices, expenditure pattern, a significant need for convenience, and brand preferences. Saving for retirement, buying homes and other traditional markers of achievement are no longer desired. Most of them have adopted the “You Live Only Once (YOLO)” ethos, enjoying life to the fullest, at the cost of their savings. Truth be told, many of them have no track of their spending, and have even less than Rs1,000 in their savings account.

Working as a management trainee in the Quality Council of India, Supratika Nandi confesses of having ?21 in her savings account. Nandi has a total work experience of more than a year now but yet has been unable to save or invest her money.

“I earn Rs19,000 per month all consolidated. Out of this, my travel expenses are approximately Rs2,000 and the EMI for my iPhone costs me Rs5,800. Other than that, all are miscellaneous expenses, which include shopping, dining, grooming, gifting, and stuff,” Nandi says.

She also admits to being a shopaholic and often indulges in online shopping along with purchasing high-end gadgets. Also, living with her parents saves her from having any financial responsibility.

“It is not like I cannot save, as I recently purchased an iPad with my savings and I also want to save for my higher education as I do not want my father to pay for that. But it is just that, something or the other comes up, which seems unavoidable at that moment. The next thing you know, I am broke by the end of the month,” she explains.

Why are young professionals unable to save? Aanchal Chopra, Certified Financial Planner, says, “This generation of the workforce lacks long-term financial goals like purchasing a house or retirement plans and many of them do not even understand the concept of compounding and the importance  of early investments.”

Addressing this issue, Shweta Jain, Certified Financial Planner and Founder, Investography, says, “The fact that young employees have less understanding between needs and wants and the fact that no one is asking or teaching them to save hurts them. Also, they have different lifestyles and a lot of variables. Hence they may not be comfortable investing money that is locked away for the long term.”

So, how can they embrace the habit of saving money without sacrificing on their lifestyle? Jain suggests the idea of budgeting. “Not only is it underrated, but is also the single most important factor in getting us financially independent. By budgeting, you are holding your money accountable and what gets accounted gets better,” she adds.

Confessions of a Shopaholic is one of the most relatable book and movies if you are constantly in the conundrum of differentiating between luxury and necessity when it comes to shopping. Rebecca Bloomwood personifies the dilemma of every shopaholic and the repercussions of overusing  the “Magic Card.”

So, what are the best options to save money when someone is a shopaholic? Refrain yourself from using credit cards. Credit cards do look enticing and can be extremely detrimental to your finances if not used properly. Jain says to control your urge to shop, “Add to cart and never check out, if shopping online. If shopping offline, do not carry cards. Instead, carry cash if you want to stay within a budget.”

However, this does not paint the complete picture of young professionals’ investment scenario. Not every member of Gen Z and millennials are living their lives paycheck to paycheck. Sure, their financial priorities differ from their previous generation, but many of them have become millionaires by the age of  25 and are investing or expanding their own venture.

One of the living examples is Ritesh Agarwal, Founder and CEO of hospitality unicorn, OYO Rooms. Agarwal started his entrepreneurial journey when he was 17 years old and was named the “youngest self-made billionaire” by the age of 24. So, it would be inequitable to generalise every young professionals based on a pre-conceived notion. Many of them understand the need to start saving early and are diligently investing their income to meet their financial goal. And good startups are a vivid example of milliennials’ big dreams. 

Having said that, there is another set of millennials who are simply accumulating their money in a savings account without having invested into anything owing to their lack of knowledge.

Some are still opting for traditional investment methods like Public Provident Fund (PPF), as suggested by parents. Insurance is often bought for protection rather than for investment purpose.

Working as a video auditor in Opera, Shahram Warsi, has more than Rs3 lakh in his savings account and his only investment has been in gold jewellery and health insurance.

 “Out of my entire salary of ?35,000, a major chunk goes out in clearing credit card bills, which is generated from grocery shopping, online food apps and other personal expenses. So altogether, approximately Rs13,000 to Rs14,000 is spent from my side monthly on credit card bills and rent. The rest simply lays in my savings account and is kept for any emergency,” says Warsi.

Warsi has been working for one and a half years now and wants to invest in gold and mutual funds in the future, as suggested by his family. But, does not have much knowledge about other investment platforms and currently does not have any financial goals for himself.

So, what are the best investment plans for young professionals and how do they get started with it? Jain suggests, “Start small, always. Start investing a small amount and you will see how it is growing over time and that will help you gain confidence and invest more. PPF is a great start for small amounts that can be locked in. ELSS is a great start for someone looking to invest for tax savings, a monthly investment can be done. Since there is a lock-in period of three years, it helps to stay invested.”

 However, another problem, young professionals face, is staying disciplined with their investments. Most of them either have no financial goals or short-term goals, making it difficult to commit to investments. The first step towards staying invested would be to set a long-term financial goal.

“To lay the foundation of investment, first make a list of your goals and prioritise accordingly. Then align your goals to your investments. Then only you will be able to select the right platform and stay invested. Also, consult a financial advisor to guide you through your investment journey,” proposes Chopra.

The importance of early investments cannot be emphasised enough. It can be overwhelming for a young employee to understand and save instead of spend. Jain urges them to save 30 per cent of their income, they can invest up to 10 per cent in the long term, and 20 per cent in the short term, but they need to save 30 per cent.

“A lifestyle upgrade is easy but downgrade is very difficult, so be careful about upgrading it. No one is guaranteeing us our careers so tomorrow’s certainty is not a given either, they have to look out for themselves. So, save, save all you can. But save for things that matter to you. Be it a vacation, a bike, a house, retirement, whatever it is. Keep some priorities, so it is like picking your battles. Keep some goals and adjust according to those,” asserts Jain.

So, if you have just started working or have been working for a while now, just remember that you are never too young to start saving for the future. 

sneha@outlookindia.com