There are some money myths which millennials must debunk at the earliest for effective personal finance management.
28-year-old Sourav invests heavily in bitcoins. Gadget freak and tech-savvy, he feels it’s one of the easiest ways to make money and compound it within a short span. Although he knows that this virtual currency is not recognised as a legal tender in India as well as the associated vulnerabilities, he doesn’t shy from investing a significant chunk of his salary in this cryptocurrency.
Sourav belongs to that breed of millennials who, though ambitious, lack the required skills for matters like investment and long-term wealth creation. There are many like him who feel that adopting this shortcut can help them enhance their riches. They couldn’t be more wrong as it’s just a myth.
Such money myths are nothing new. What’s essential is to demystify them especially for millennials, the chief wage earners in India, with a 47% share in the working population. Today, we aim to shed light on such myths which millennials must debunk at the earliest for effective personal finance management. Let’s get started.
1. It’s easy to become rich
In the digital age of online lotteries and cryptocurrencies promising bumper returns, many millennials feel it’s easy to join the elite list of the rich by investing in them, like Sourav and co. However, in reality, they are a recipe for financial disaster.
This is because as these avenues are mostly unregulated, there are no fixed guidelines on how your money is invested. Additionally, there’s no appellate authority where you can complain. Should you suffer losses due to unethical investment practices?
Remember that becoming rich is an art that requires sound financial investments in well-regulated financial instruments. Through meticulous planning and disciplined approach, one can build wealth over the long term. Equities can help you in your endeavour as among all the asset classes they hold the potential to deliver inflation-beating returns.
As per a report, inflation-adjusted compounded annual growth rate (CAGR) of multi-cap funds for 15 years has been 10.16%, while that of EPF and PFF during the same period has been 2.26% and 1.70%, respectively. The figures justify the need for equities in your portfolio.
2. Tax paying isn’t a huge deal
Paying taxes is an essential part of the financial journey. Taxes keep the economy running and help the government fund various schemes for betterment of the people. However, most millennials have a wrong notion towards filing income tax return and are comfortable in placing this vital exercise right at the bottom in their list of priorities. Some even don’t mind wilfully concealing their income.
However, note that in the past few years, the government has tightened tax rules and authorities are resorting to Big Data, Artificial Intelligence (AI) and Machine Learning (ML) to zero-in on tax evaders. Tax return forms have changed and now, you need to declare income earned from every source – salary, fixed deposit interest, stocks, shares, mutual funds, etc.
What’s essential is to align tax planning with financial goals and, thus, choose among the several tax-saving instruments with utmost care. It is equally important to lower tax liability by investing in various instruments outlined under different sections of the Income Tax Act, 1961.
3. Debts in any form are bad
Technological advances coupled with the rise of an alternate class of lenders have made availing debt easy. It’s hard to resist 0% EMI offers. However, it’s crucial to distinguish between good and bad debt.
Every debt is not necessarily a bad one. For instance, a loan taken to learn a new skill to get a career boost isn’t a bad one. The fundamental question should be how the debt will help you grow your wealth in the future. At the same time, it’s vital to opt for an amount that can be repaid comfortably.
4. Lifestyle borrowings are good
A recent industry report found a spike in demand for lifestyle-related cards by 53.6% from those under the age of 25. These cards are exclusively designed to spend on lifestyle-related needs such as dining, apparel, entertainment and shopping, among others.
Most millennials feel that these cards are an absolute necessity and a way of modern life. While such cards satiate the need for funds for these expenses, the charges are on the higher side. Roll over of dues on such cards can severely affect credit score and bring down creditworthiness.
Also, it can lead one towards a debt trap, resulting in impinging of essential life goals and disrupting the journey towards achieving financial freedom.
5. It’s better to stay away from stock markets
Another myth, which in a way is surprising from a generation that likes to experiment, is that dabbling stock markets is unsafe and will always lead to a loss. Believing and acting on it is expensive, as it can hamper long-term wealth accumulation. It’s true that a large section of the millennials has entered the workforce, when the markets are volatile, which is a major catalyst behind keeping them away from the markets.
The move though can be risky as it allows inflation to tighten its grip and erode the value of money. If direct stock investment seems a risky proposition, adopting the mutual fund route can reap dividends as it helps to gain real returns in the long run.
Shedding these myths goes a long way in accomplishing major life goals and paves way towards financial independence. Also, with the right approach, millennials can wrest financial control.
(By Rahul Jain, Head-Personal Wealth Advisory, Edelweiss)