Mumbai-based life coach Milind Jadhav hasn’t come across any millennial or zillennial who doesn’t complain about dealing with month-end financial blues. According to Pew Research, millennials are individuals born between 1981 and 1996 and zillennials or Gen Z comprise of individuals born after 1997. “We’re living in a world where billions of dollars and the best of marketing minds are at work trying to get you to spend your money. What should really be a want has now become a need for many, thanks to savvy marketing, and millennials are falling prey to this," said Jadhav. So what are the underlying issues and what can millennials do to get their finances on track?
While it’s true that the younger generation is spoilt for choice, overspending can harm their financial health. According to data from digital lending company CASHe, in 2019, 26% millennials borrowed money to purchase electronic gadgets and other white goods and as many as 73% of the company’s 400,000 loan applicants were repeat borrowers. The majority of the borrowers fell in the average salary bracket of ₹25,000-50,000 per month.
Chadagar manages because she can fall back on her family with whom she lives, but not everyone has that advantage. For Mumbai-based Jai Sharma, 22, who lives away from his family, fixed expenses such as rent and utilities are a major part of his monthly outgo. “I usually order food since employing a cook is expensive and I have rudimentary cooking skills," said Sharma, a business development associate. Almost every month, Sharma ends up using his credit card to fill the gaps in his expenses.
Jadhav said there is an openness to take on credit—through credit cards as well as personal loans. “Everyone knows that it’s not the best way to live life but I see people living in denial. The tendency is to live for this month and believe that you’ll start saving once you get a better job," said Jadhav.
The fact that most millennials and zillennials find it difficult to stick to a budget is further confirmed by their behaviour towards investments. Deepali Sen, certified financial planner and founder partner of Srujan Financial Advisers LLP, said one of the most frequent requests made by her millennial clients is fixing the SIP debit date in the first 10 days of receiving their salary as they could end up spending the money if they have access to it. “Most of them find it difficult to distinguish between essential and ‘feel good’ expenses," said Sen.
It’s almost like playing a game of catch-up—you’re living from paycheck to paycheck. In doing so, you often end up not saving or investing at all. There’s a stark difference between the older and younger generations when it comes to their behaviour towards money and Jadhav said this is because the older generation lived a relatively simpler life. “Millennials live in an extremely complex era. Work is no longer 9 to 5. There are crazy working hours, long commutes and stressful work environments, with little or no extended family support. They’re continuously on a treadmill—running really fast and getting nowhere. Their solution? Impulse purchases and living for the present," said Jadhav.
What happens next is worrisome. You start with one credit card and soon enough have a few more. Once you are unable to pay the huge outstanding dues built over high interest rates, you turn towards personal loans that too are costly. All of this can set you back within no time and it can take forever to recoup. All the stress can take a toll on your mental health, affecting your work life as well.
The Art of Budgeting
The answer to “How do I strike a balance between today and tomorrow?" lies in the art of budgeting and then sticking to it. And no, this doesn’t mean you have to cut down heavily on your expenses but it will help to streamline them.
Sharma said he’d be able to work around with what he earned if he was able to manage his expenses on food. “It is a substantial part of my expenditure and burns a hole. I know the solution is to find a better place at a lower rent and employ a cook. But then Mumbai is anything but reasonable in terms of both these things," he said.
Financial planners we spoke to said there can’t be a standard template that fits everyone’s needs. However, two things can fix most of the problems. One, investing before you spend and, two, sticking to a budget without giving in to temptations. “You don’t spend what you don’t see. As humans, we adapt easily. If you know that your bank account has only so much, you’ll slowly learn to restrict your expenses," said Shweta Jain, CEO and founder, Investography, a financial planning firm. But you can’t expect this to work if you have apps on your phone that allow you to borrow money on-the-go. Experts recommend avoiding such apps altogether.
If you’re starting off and don’t know how to go about making a budget, here are some tips: Always invest a fixed amount every month, and then put aside some amount into a contingency fund. “This buffer can help you during cashless days or in case of an emergency. But always remember to refill it when your salary is credited," said Basavaraj Tonagatti, a Sebi-registered investment adviser and certified financial planner. Next, pay up your fixed expenses such as rent and utilities at the earliest (electricity, Wi-fi bills, house help salary and so on).
Understand the difference between needs and wants. Allocate money for the needs first.
Having a fixed budget for your weekend spends could help. Say, you allocate ₹1,500 for a weekend, and spend all of it on Saturday, then spend your Sunday indoors to stick to your budget. If you see a high-ticket expense coming up next month, cut down on your weekend spends and move what you’ve saved in a different account.
Another option is to find cheaper alternatives to expenses. Take the metro or car pool to get to work instead of spending on an individual cab. Try and take lunch from home instead of ordering in everyday if you’re anyway paying the cook. For your subscriptions such as Netflix, share the account with friends to split the cost. “New variants of electronic gadgets come almost every year. Don’t give in just because the camera in the new variant is a tad bit better. Companies do this to keep you on the ‘buy mode’ forever," said Tonagatti.
If you do all of the above, and there’s still a gap between your income and expenses, you will have to make some tough decisions. “Sometimes budgeting may be insufficient to meet the goals. Some goals may then need to be dropped, delayed or shrunk in size," said Sen. “Questions such as which goals matter the most and analyzing which short-lived gratification can be sacrificed for more tangible goals such as buying a car, learning a new skill or starting an enterprise is important." If your goals are not something you can mend, looking for additional sources of income is a good idea.
Don’t get into the habit of living on the edge. This behaviour could transmit to other spheres of your life as well, said Sen. Also, getting used to living a certain kind of lifestyle and then suddenly cutting your spends at a later age may be tough and emotionally draining. So assess what you can afford at the beginning itself. You don’t want financial stress to affect your productivity at work, harm your mental health or strain your relationships, so start planning today.