India is supposed to be enjoying the benefits of demographic dividends. While countries like Japan and China are sitting on the cusp of supporting a massive population of aged people, India has the highest proportion of young people. In the last few years, many of them have come into the mainstream of work and business and thus have become serious contributors to the economy. However, the question is if they are planning their finances correctly or are they making some basic financial mistakes. Let us look at the financial challenges for young adults and how to overcome your financial problems; both current and potential. For youngsters, the big challenge is how to overcome your financial problems and having a Plan-B in place for financial challenges. Here are some of the key financial challenges for young adults.
1. Don’t be in a hurry to buy a home; it can wait
The allure of home ownership is powerful. But is it the right idea to jump and buy a house with your first salary itself. Try to resist until you’re really ready. Today the mood appears to be to first buy an apartment and the average age for buying a home has come down from 35 to as low as 26. The problem is that young are committing themselves to a long term mortgage very early on in their careers. Instead they should be focusing on investing in their careers, finalizing where they want to make their careers and then worry about buying a home. Today buying a home is not like in the past where it was necessarily an appreciating asset. Home prices have gone up sharply and hence you need to be a little more cautious. Give yourself at least 4-5 year of time to zero in on where you want settle down and then take a home loan decision. Don’t burden with a mortgage too early. Owning a home is rewarding, but it requires time, money, and a serious commitment. It is not something you should take up too early in your career.
2. Splurging too much on your education with the help of a loan
If you can earn demonstrably more money by getting an advanced degree in your field, heading back to school also makes sense. Too many young people are spending a lot of their own money, parent’s money and taking loans to finance expensive education degrees abroad. It is going to be hard to recover these kinds of costs without burdening yourself. Much has been written law grads with six figure salaries but with seven figure debts, you are going to spend half your salary servicing your education loans. On a lighter vein, some of the best entrepreneurs in the world were dropouts. That is not a template but the moral is not to spend too much on your education.
3. Credit track record is a must; so don’t be too conservative
If you want to take a home loan or a car loan at a later stage, it is important to build a good credit history. No credit history is not good credit history. Your application is likely to be rejected. So, make it a point to create a credit history but create a clear credit history. This will be useful in getting loans in future. It is good to be sceptical about debt but if you make a conscious effort to avoid credit cards and debt then it does come at a cost. For better or worse, a good credit record matters. A good credit record with CIBIL matters not only when you go to buy a home, but for things like car insurance, renting an apartment, and sometimes even getting a job.
4. Stop depending entirely or substantially on your parents
If your wealthy parents (or perhaps overly protective parents) have helped you pay for school, an apartment, or your insurance, count your blessings. It is ok to choose to live with your parents to save on rent but do not make that an awful addiction. Dependence can awfully addictive and at time dangerous too. Regular transfers from the Dad and Mom are great if you take this money as a temporary assistance. But they can work against if you take that as an entitlement and get addicted to it. Please don’t try and get addicted to a lifestyle riding on your parent’s money. Navigating finances on your own is the best way to learn how to be an independent and responsible adult.
5. If you fail to plan then you are jolly well planning to fail
When it comes to your personal finances, having a plan separates the men and women from the boys and girls. Whether your father is Bill Gates or any other person, your means have to be created by you and they are also finite. We have a limited supply of money, so we must decide intentionally what we’re going to do with it. That means balancing needs and wants today with needs and wants tomorrow. This is where the toughest choices have to be made. If your father acts as your banker of last resort you will fail to tackle your own financial challenges.