Millennials’ saving headache: How to set aside money every month

Putting some money away every month or whenever you earn is never easy. However, this is one of the surest ways to ensure your future is secured.

Millennials (anyone born between 1981 and 1996), particularly, have been singled by experts as a generation whose savings are either nonexistent or inconsistent; unable to cater for their retirement.

Forbes.com, in an article on ways millennials can begin to save in 2022, has pointed out some of the whimsical desires and unsound financial decisions this generation makes that are costly and stop them from saving, and recommends remedies.

take up health insurance

One of the mistakes millennials make is failure to take up health insurance. While this might seem unnecessary for many since they are young and their bodies are yet to start demanding for special checkups, it is an important investment.

Forbes, in the article ‘5 Ways for Millennials to Begin Saving in 2022’ published January 14, 2022 warns that a medical contingency can wipe out a chunk of one’s savings at a go. Even a few days of hospitalisation, says Forbes, can result in bills running into hundreds of thousands of shillings.

“However, things can be different with a health insurance plan in place,” it adds.

Forbes.com says a health plan prevents out-of-pocket expenses and makes sure funds are not a hindrance for one to receive the best possible treatment.

But apart from buying a regular health plan, Forbes notes that as years go by, millennials should plan to purchase a critical health illness insurance plan. This is because treatment of critical ailments such as stroke, kidney failure, liver transplant and the likes is pretty high and the coverage provided by a regular health plan may not be sufficient to cover the entire cost of treatment.

If you get critically ill, this policy can come to your rescue as it will provide a lump sum to treat the disease irrespective of the cost of hospitalisation.

“Critical plans are fixed benefit policies, unlike regular plans that reimburse only the actual hospitalisation expenses,” says Forbes.

Reduce lifestyle expenses

Forbes as well warns against indulging in too much lifestyle expenses. This, it says, is counterproductive. It points out a problem that many youth have sunk in – digital loans. “There are multiple portals and apps from where one can apply for loans in a jiffy. However, these lifestyle related loans are a costly proposition,” Forbes says.

“They carry a premium interest rate which pushes up the equated monthly instalment (EMI) amount significantly.” EMI is the fixed amount a borrower pays to service a loan extended to them. 

These loans, says Forbes, strain one’s finances, and whenever a scheduled payment is missed their credit score takes a hit as well.

“Also, lifestyle expenses don’t add real value to wealth. In difficult times such as Covid-19, maintaining lifestyle expenses can be quite challenging when income is already under strain,” it says.

Instead, this money should be saved, which could significantly add to the pile in the long run.

One can start by cutting back on some luxuries such as eating out in restaurants every weekend or avoiding the urge to get a new smartphone every six months. These lifestyle changes will accumulate to saving a good sum of money.

Forbes insists that given the times we are in, savings should be a top priority, adding that there are ways that millennials can save without fuss.

A 2017 Geopoll survey found that majority of millennials in Sub-Saharan Africa spend most of their money on personal care items (almost 60 per cent of their earnings for Kenyan youth) with Ghana having the highest at over 60 per cent. Uganda, Nigeria and South Africa are the other countries that participated in the survey.

Across all the countries, the amount spent on investments was less than 10 per cent.

“There are knowledge gaps among African millennials on areas such as effective saving plans, wise investments and financial management. When asked, many would like to better understand asset financing, entrepreneurship and investment opportunities available in their respective countries,” said the survey titled ‘The Spending Habits of Youth Consumers in Sub-Saharan Africa’.

The 50-30-20 rule

Budget expenditures, says Forbes, should adhere to the 50-30-20 rule, which it describes as an effective method to manage finances and cultivate the habit of savings.

This rule dictates that you spend 50 per cent of your income on necessities such as rent, grocery and utilities, children’s education, loan repayments and insurance. If you want something, this money should come from the next 30 per cent.

“Wants are lifestyle-related expenses such as dining out, buying that expensive gadget that is beyond budget. More often than not, needs become wants when we take them beyond the basics,” says Forbes.

Finally, the remaining 20 per cent should be put away as savings.

“The beauty of this rule is that millennials can apply it irrespective of their cash flow. It gives them the window to save at least something from their income,” Forbes says.

“The 20 per cent savings each month will add up to a considerable amount going forward.”

Mutual funds

A systematic investment plan (SIP) in mutual funds is also an important aspect of a millennial’s financial plan. Through this, a specific amount of money is deducted from one’s pay and invested in a fund of choice.

This will bring discipline into investments and help accumulate the desired amount of money to accomplish desired goals in a sustainable manner.

One advantage of investing your money in a fund, Forbes says, is the compounding interest that later swells your wealth exponentially. This is apart from ensuring you stay invested across market cycles and accumulate more when the market is down and vice versa.

“Depending on their needs and cash flow, millennials can set up SIPs on a weekly, fortnightly or monthly basis,” says Forbes. “SIPs in equity mutual funds also help guarantee inflation–beating returns in the long run and accomplish long-term goals such as children’s education and retirement.”

However, for SIPs to generate the desired returns, it is crucial to choose a fund with a consistent track record.

“First-time investors need to be Know Your Customer–compliant before starting SIPs in their chosen fund,” says Forbes.

“Just like equity investments, millennials must adopt a long-term approach towards savings. They should kick start their savings journey from the day they start earning so that they are on a robust financial footing and can ride the ups and downs with ease.”