The YOLO phenomenon is fast catching the fancy of individuals, particularly millennials, who form 34% of the Indian population.
From purchasing the latest smartphone to going on a trip in every three months to getting inked often, Rakesh is experiencing it all. The 25-year-old working with an advertising agency in Mumbai represents the growing breed of the population which is quickly embracing the “You Live Only Once” or YOLO concept. Let’s learn more about this phenomenon, catching the fancy of individuals, particularly millennials, who form 34% of the Indian population.
Enjoy today as there is no tomorrow
The YOLO philosophy strongly advocates enjoying one’s life today by taking some risks as there’s no tomorrow. For instance, to fulfil his present needs and look for instant gratification, Rakesh doesn’t shy away from taking short-term credit. Just a little over thee years into employment, he has already availed personal loans several times.
The high EMIs on these loans have often led him into a tight spot in the past, sometimes leading to borrowings from his friends and relatives, but that hasn’t deterred him one bit.
What’s contributing to the YOLO phenomenon?
The rise of millennials in the workforce coupled with instant availability of credit for fulfilling every need has given a massive boost to the YOLO concept. A report found millennials to be the chief wage earners in the country, with a 47% share in the working age population.
For the tech-savvy millennials, unlike the previous generation, opting for short-term credit is no longer a daunting task. A few taps on smartphone and the loan amount is instantly credited into the account, within a matter of minutes. Also, for a large section of this population, life is more inclined towards expenses rather than savings.
Pitfalls of YOLO
While life choices are individual preferences, adopting the YOLO concept has several pitfalls. Not only does it affect your financial well-being but also leads to procrastination of essential life goals. Some of the more common pitfalls of YOLO are:
# Tendency to live on borrowed money
The urge for instant gratification leads to borrowing for every little need, which leads to imbibing a dangerous trait, which is living on borrowed money. Also, when you do so on a regular basis, your creditworthiness takes a hit.
Lenders perceive you as a credit hungry borrower and in such a scenario, the loan offered may accompany a high rate of interest. A loan with a high interest rate results in steep EMIs, which can derail your monthly budget and stretch your finances.
# Expenses gain more priority than savings
While adopting the YOLO concept satisfies your wishes right from the word go, it leads to expenses gaining more priority than savings. This can disrupt monthly budget, leading to unnecessary borrowings, thus slowly pushing you into a debt trap.
A vicious cycle of debt, this trap is hard to overcome and can take a toll on your personal life and relationships.
# Delay of essential life goal such as retirement
Essential life goals such as retirement can fall prey due to YOLO. A long-term financial goal, retirement calls for saving and investing right from the moment you start earning. However, as you tend to save less and spend more, there’s hardly anything left to channelize towards retirement.
Today with increase in life span, post-retirement years are as long as active income ones and hence, it’s important to build a large retirement kitty through deft and prudent investments, particularly in equities. Apart from long-term goals, even short and medium-term goals such as buying a car, accumulating a corpus for children’s higher education, etc., becomes a tall order.
# Financial indiscipline
Financial indiscipline is another flip side of YOLO. Constant borrowing and living beyond your means are all signs of indiscipline which have long-term ramifications, the worst of them being unavailable to achieve financial freedom. True, you can satisfy all your present needs, but unable to achieve financial freedom is a cost too much.
Should you stay away from YOLO?
If you are someone who feels restless if your wants aren’t satisfied, probably it’s difficult to stay away from YOLO. That being said, it’s essential to adopt due diligence and not lose focus of long-term goals such as retirement.
Equally essential is to keep investing a small amount every month to build a buffer for emergencies and other objectives. This can be done through a systematic investment plan (SIP) in mutual funds, which allow you to invest a small but fixed amount every month. Even a modest SIP of Rs 2000 per month in a fund offering annualised returns of 14% for 15 years can help you accumulate a corpus of above Rs 12 lakh.
In the digital age, particularly with the emergence of alternate channels of finance, funds are not a paucity for fulfilling any goal. What’s important is to have a long-term view of things and act accordingly.
(By Rahul Jain, Head-Personal Wealth Advisory, Edelweiss)