We have come a long way in just a couple of decades. From being dependent on our parents, we have started earning and saving money for ourselves. From playing snakes and ladders on our parent’s cell phones to seeing the rise of digitalization, we have experienced the shift in lifestyles well enough to be able to reminisce about the good old days with our family and friends.
And being fully swallowed by this new generation, it is safe to draw out the differences between the past and the present. How our parents used to sleep on the terrace with their coolers on in winters, and we sleep in separate air-conditioned rooms. And from our parents watching DD National together with the whole neighbourhood to us having private Netflix and Hotstar Subscriptions. And how our parents supported and raised a family of many people without saving or investing, to us barely able to survive in this expensive world.
Here are a few examples that you might relate to:
Two-wheelers were earlier something only some people could afford, the common man’s ride then was the good old bicycle, but now almost all households rich or poor have a two-wheeler parked outside their house. An earlier luxury converted into necessity yet again. There are so many things that earlier were not deemed needful, which in today’s time act as our blood and bones: Mobile Phones making literally everything within our reach, Air conditioners, replacing the age-old coolers and finding their presence in each room of majority of households, services like Movie Screening that focus on making the movie into an experience (3D/4D/7D) or Online food delivery portals, offering amazing deals on food that reaches your door. All these things weren’t widely famous or popular earlier but have gained a wider base due to one innate reason: The standard of living has increased.
The only thing constant in our life is change. People, things, situations, and places even the world are known for their changing spirit. If I tell you to leave your modern housing and go live in houses made of mud or stop using cars and go to work on horsebacks or walking, you’ll think of me as a lunatic. These things are called traditional for a reason. They aren’t of much utility in today’s time. Over the years many things changed, and as people started advancing towards getting higher pay-checks, their need to spend money increased with it. “I’ve worked hard for this money, so there is no harm in spending it.” This phenomenon is called Lifestyle Inflation. Every time your salary will increase, you will tend to spend more to reach the desired level of standard of living. This can be all rainbows and roses until your spending is on the larger side than your investments. As we understood, a higher paycheck leads to greater aspirations and demands for the present as well as for the future but to fulfill those your wealth should also undergo certain appreciation as well. Now answer me, will putting up your money in a NSC be beneficial for that, or getting an FD or a savings account? If you have looked at the returns these services provide your answer would be a solid NO. Today’s generation is different, with their dreams, aspirations and demands all taking a different approach than their previous generations, their financial needs would vary from them too. As it goes in most households, parents advise their children to take certain financial decisions that worked for them in their time. A constant cause of worry for our parents is mainly that the younger generation focuses on living their dream in their present and not spend time to carefully think about their future, and they are not wrong in feeling that. This becomes one of the main reasons where parents give financial advice to their offspring based on what worked for them. Now the decisions were taken at a time when inflation was not at the levels that we see it soaring to today implying that things were cheaper still, demands were limited, the problem of choice didn’t arise as only a few investment opportunities existed then.
But is following their way of handling finances right for us?
If everything from the way we travel to work to the way we eat food now has changed from their time to ours. Why shouldn’t the way of handling business and finances change?
Today, we cannot adopt the same investment strategies as them for multiple reasons:
01. Change in Lifestyle: The lifestyle today is very different from what our parents had. Our parents probably went out to eat in restaurants twice or thrice a year, while we go out the same amount of time in a week. While this seems like a small change, the amount of money spent on luxuries such as going out to eat has become very common today. Luxuries have turned into necessities. Having a car is becoming a necessity today. In this manner, I can say that while our parents saved 80% and spent 20%, we do the opposite. Our lifestyle does not promote saving money the way our parents used to. We spent 2000 Rs in a day on our unimportant needs.
02. Low Fixed Income Returns: Our Parents used to get 12-13% interest on fixed deposits while the rates today are barely 5-6% which will only decrease with the increase in the economy.
03. Life expectancy: On average, we will live longer than our parents. The average life span increases by one year every three years. While the previous generation retired at 58 and lived till about 70 years on an average, and hence needed to plan for only 10-15 years of retirement. Today, with all the medical advancements, we can live till even 100. Which brings in the huge retirement cost and the exceedingly expensive medical bills that come along with old age.
What mattered earlier but doesn’t hold much importance today:
01. Real Estate: Buy a house, Life Set Ho Jayegi
Buying their own house is on many people’s to do list, but for someone who has just began their journey in the professional sphere, it might just not be in their best interest after all. You might be changing cities or even countries due to your job, or you might have planned something else for yourself in the future, maybe opening your business or travelling or any other dream that you might want to pursue alongside your profession, in which case real estate will not only burden you financially but it will be an active hindrance in your potential growth. Plus for working professionals, rentals become a way cheaper source coming down to about 1/3rd the value of a single EMI.
02. Equity Markets: Keep A Distance from Equities, Life Stable Rahegi
Our parents believed in capital preservation, so thinking about investing in stocks was a big no-no. It might be due to their experiences and financial goals that they must have stayed away from Equity markets. If you take today’s scenario with the amount of information available to the public about the stocks, the various instruments available to invest like mutual funds, and various educational platforms offering a greater understanding about the markets, investing in equity has never been more easy and beneficial.
03. Buy an Insurance Policy: Life Safe Rahegi
A lot of parents suggest their children to park their funds in a pension scheme just as they start earning. An average pension scheme will give a return of Rs.8000 after 25 years of investment. After seeing the return investing it right after you begin your job doesn’t make a whole lot sense. While a pension scheme might not be the right fit, investing in a Term Plan or medical insurance will of much more benefit even from the beginning of his/her carrier.
05. Relationship Manager:
Put on your best behaviour for the Most millennia’s won’t even know who is a relationship manager at the bank. While it was important for our parents to maintain a decent relation with them so as to get a higher education loan, or get change for Rs. 10 and Rs. 50 notes, nor will their cheque clearances depend on the relationship manager.
We can safely conclude here that our cost of living is much much more than what our parents were used to. We have to be extra careful with everything, every policy and spending any money on anything.
I know it was easier back then, but your parents were majorly dependent only on you to support them in their old age. Can you depend on your children after your retirement too? Great! If you’re thinking yes. But if you have a slight doubt about what the growing economy will bring in the future and on your children here’s a few things that you need to check off before your retirement.
- Make and follow an active financial strategy for the future, which folds in expense management, goal planning, retirement planning, risk management, and estate planning.
- Start looking at options such as investing in equities and mutual funds. Keep in mind the debt, where the combined return of the portfolio beats inflation comfortably. Being risk-averse could be one of the biggest risks to financial independence.
- Plan for your money to stretch for nearly 40 years after your retirement.
- Keep your emergency funds and savings apart from each other and start differentiating between savings and investment. One is for emergencies and one is for the future.
The time our parents earned and raised you in is gone and so are its weaknesses and perks. If you want. If you want to be financially stable, and live a happy self-dependent future life, then start saving and investing as a man of the present and not of the past. If you want to enjoy the perks and the upgrades of the present, balance it out by investing it for the more changes to come in the future.
Saarthi Dream (Saarthi for your financial dream)