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Before the pandemic, the ever-present nature of money created a false sense of security in the minds of many people. The pandemic-induced economic challenges made one thing crystal clear to me – ample savings are integral to handling a crisis.

Millennials and GenZ are contributing towards society as individual contributors and through entrepreneurship, but this cohort isn’t inculcating a lifestyle of savings. They sometimes rely on short bursts of income or expensive credit, which is unsustainable. A thought-through savings plan will ensure the longevity of fund reserves while fostering a culture of sound personal financial management.

Savings is usually defined as the difference between income and expenditure. Personal finance is the science of managing both these aspects.

There are sophisticated personal finance management applications that help one manage expenses by providing hawk-eyed perspectives into spends whereas other apps help in savings and investments. Through these means, one would be able to work towards building financial security.

What does it mean to be financially independent?

Millennials are constantly seeking independence in their lives, including financial freedom. There are few functional aspects to this. Setting up an emergency-use fund, establishing a passive income source and limiting debts are some of the tried and tested ways of creating a strong foundation.

Here are some ways to start this process:

Insurance – Term life insurance and health insurance are two must-haves. If you are yet to sign up for insurance, wait no further. Find an insurance provider with terms and premium that best suits you, and get insured soon.

Public Provident Fund (PPF) – This is a relatively low-risk and tax-free way to accrue wealth using regular savings. Income Tax law permits a lump-sum of Rs 1.5 lakh p.a. to be invested. Start at the age of 25 with Rs 1 lakh p.a. with a lock-in period of 15 years, and you may have a tax-free income of Rs 12.3 lakh and a tax saving of about Rs 5.6 lakh.

Equity in listed companies – This investment avenue has turned out to be the gold rush during the pandemic. New records have been set in India in fresh enrolments. This asset class can generate an annualised pre-tax return of 12-15% in the long run. However, one needs to invest their time or pay a share of the profits to an investment manager for these returns. Choose direct equity or mutual fund or ETF route to attain optimum returns according to personal goals.

Paper Gold – This is an underrated asset class. A host of mutual funds and ETFs help in this investment and can protect financial savings from unfavorable macroeconomic episodes.

Other avenues demand complex thought-process and technical knowledge. These include debt investments of various types, private equity, real estate, retirement savings plans, etc. If these choices are made without sufficient diligence, one may experience adverse results.

Personal finance management is essential for good living and this can be done by starting early, setting goals and seeking professional guidance. Make this a constant in your life.

Like DiCaprio says in The Wolf of Wall Street, ‘I want you to deal with your problems by becoming rich!’.

(The writer is AVP – Risk, Capital Float. Views expressed are personal)