Ever heard of the Bandwagon effect? Means: Following the crowd. There’s a new iPhone that everyone is buying, let me buy too. There’s a concert everyone’s attending. I will attend too. Europe plan? I am in. When it comes to money Gen Z has a different take.
It is hard to convince Gen Z to save it for an emergency. Their take- why earn when you can’t spend. A lot of parents ask how to make my child believe in the power of savings when they say- life is unpredictable so spend as you earn. Spending gives instant satisfaction and saving is just too slow a process in this fast-paced world.
Radhika Gupta who is a CEO of Edelweiss Mutual Fund has a mindful take on this. She recently shared her advice on social media and it has garnered a lot of attention. Being young and having money in hand gives you wings to do everything you dreamt of. Attending concerts, travelling and buying luxury. There’s a magnetic power that pulls Gen Z towards spending. But she believes one must focus on building financial power. And to do that you need not make big sacrifices. It can be achieved by smart habits.
Her approach is based on two key ideas:
1. The 10-30-50 Rule
Gupta suggests a simple rule for saving through different stages of life:
- Between the age 20-29: This is the right age to start. It does not matter how little you save. Just save. Even if it is 1-10% of your income. The key is to build habits.
- When you are in your 30s: By now, you will acquire new skills, gain more experience, and eventually your salary will take a decent jump. She advises to save up to 30% of your income. In your 30’s you will have bigger dreams to buy a house, to begin a family and to own a car.
- By the age of 40 and beyond: By this time, you must make a target of saving 50% of your income. This is the time when you will be earning at your peak. Saving more will ensure a more comfortable future.
Radhika Gupta says that the beauty of this rule is that you do not need to aim for perfectionism from day 1. Focus on building a habit and savings will grow over time.
Use Technology and Save Automatically
Her most meaningful advice to Generation Z is to use technology to save money. Just like your Income tax is deducted automatically, just like your EMIs are deducted automatically, similarly make your savings happen automatically.
How will this happen? Choose automatic transfer options available for bank savings, Fixed Deposits, Systematic Investment Plans, Recurring Deposits or any other investments of your choice.
If you automate your savings, you will realize that you won’t have to bother about saving month after month. Biggest advantage- you don’t feel the pain of your money going away from you because you are no longer consciously putting away your money.
Start Early.
One key focus area where Gen Z should definitely consider her advice: start savings early. The CEO says starting early is the key. It is more important than saving big. If you save Rs 1000 per month when you are 20 years old, this amount can turn into a big corpus when you are in your 40s. Her analogy is that just like in a cricket match you can’t win a match just by net practice. You have to play the real match. Similarly, you can’t deal with life challenges without money. And to build that money, you must build a habit to save that money.
The Real Balance
Radhika Gupta has shared lessons for life which aren’t taught in schools and colleges. The key is to build a habit of saving, consider saving automatically and enjoy what life has to offer. You have a long life ahead and with the money you save today, your future self will thank you for your good financial decisions.
Read more: Top Business Magazine
