Do not save what is left after spending, but spend what is left after saving. – Warren Buffet

You are in your 20s!

You have just started a job.

In the next few years, you are planning to settle.

This is one of the most memorable phases of your life when you are engrossed in enjoying life unadulterated- partying with friends, shopping to meet all your dreams, purchasing hi-end gadgets and spending money on life’s extravaganzas.

But, have you thought about savings and investment?

Now the first thoughts that pop in your mind sound like this most likely:

• Should I worry about savings at this stage? It’s time to live!
•  Isn’t the right time to think about it is your late 20s?
• I don’t even earn enough to save!
• Even if I do, how to save money?

To do or not to do…that is the question.

According to the world’s top financial gurus, your 20s is the right time to consider savings and investment. When you start your professional career, you have lesser (or sometimes no) obligations. You have nominal expenses, and so you can save a big portion of your earnings. Moreover, you can afford to take financial risks.

Also Read: Why is Early Financial Planning Important?

If you are thinking about a current cash crunch, it will always accompany you in every stage of your life, and trust us, these cash crunches just keep getting worse unless you hit a jackpot. With an increase in income, your lifestyle and responsibilities also take different forms of cash crises. A well planned financial life will keep you ready for rainy days as they come only when you least expect.

Above all, you need a good corpus for your retirement and the right time to think about it is NOW, neither tomorrow, nor next month, nor next year!

To make sure that you are on the right track of your financial journey, here a quick guide.

Plan out your financial goals

Divide your financial plan into short-term and long-term goals. Your short-term goals will include saving money for expenses in the near future, like purchasing a car, holidays, deposit for a home and to cover emergencies. As you are in your 20s, many financial bumps are going to come in your way; for example, you lost your phone and now need another one, want to purchase the latest PS2, require a vehicle to commute to the workplace and so on.

Here you should understand the difference between saving and investing.

Saving means putting your money into cash products, like saving account in a bank.

Investing, on the other hand, means trying to make it grow by purchasing financial products that will increase in value, like mutual funds, invest in stocks or property. Investment usually comes under the umbrella of long-term financial goals as they give a good return only when invested for a longer run. While you can also put your money for short-term investment, your real long-term financial goals should include saving money for retirement.

You can be young without money, but you can’t be old without it - Tennessee Williams

Yes, you need insurance

A financial plan can never be complete without insurance. You might have been provided insurance coverage by your employer. However, is that sufficient? What if you leave your job? An ideal insurance plan should neither be a part of just another way of growing funds nor should it be limited to the plans provided by your employer. Health insurance and life insurance should be an essential part of your financial map. A good plan should be able to give you the required coverage anytime when you need it. In addition, the sooner you buy life insurance, lower will be the premium you pay on it.

Ever been in an emergency?

Emergencies are unpredictable and can come anytime and at any stage of life, even in your 20s. For example, laptop breaks, vehicle repairs, get sick and consume all paid time off. Such unexpected situations may come anytime in your life. You should be well-prepared for it, and the best way is to pilfer some money from your saving account to create an emergency fund that has high liquidity value. The general rule is to stock at least three month’s expenses (ideally include rent, food, and other essential outgoings) in your savings account. You can also invest in short-term funds with no lock-in period.

Have all your eggs in one basket?

Never depend on single income. Invest to create a second source. When investing, don’t lay your eggs in one basket.  – Warren Buffet

Follow this golden rule when growing funds and diversify them to let them effectively grow. You will never get much out of a single investment plan. It also reduces risk and is widely considered a sound financial plan. You can divide your savings and put them into investment plans, fixed deposits, public provident fund, post office saving schemes, monthly SIP, etc. Though considered risky, ELSS or equity linked saving schemes are another profitable way of investment.

Ahem! Self-control

Getting in a relationship doesn’t mean draining all your funds, nor does coping with a break up require a trip to Dubai. Self-control is one of the biggest factors when it comes to savings and investment. There should be some limit to your desires. Enjoy your life, spend money on stuff you want to purchase but don’t forget to save. Sometimes you don’t require fifty pairs of shoes – a fact you will realize when you will be in your 30s.

When drawing out your financial map, always remember the famous quote by Dave Ramsey – Financial peace isn’t the acquisition of stuff. It’s learning to live on less than you make, so you can give the money back and have money to invest. You can’t win until you do this.

AN AUG 05/18

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