In today’s times, it is essential for young adults to keep their finances in order and plan their savings and expenses smartly. One of the key steps to better financial management is to save strategically. First of all, you must learn to differentiate between savings and investments.
Remember, age is on your side and it is the ideal time to start setting aside funds on a regular basis. Put them in financial instruments that can help grow your money over time. And if you plan well, it is never too difficult to retire early with enough money on your hands to take care of your needs.
The starting point
A good starting point could be getting hold of some very basic personal finance books. Or, make a habit of reading about them in newspapers and magazines. As you get accustomed to managing your finances, you will realize that even small adjustments in your daily life can help you save a lot.
- Study your spending habit
Watch your spending habits for three to four months. Then, carry out a post-mortem. Figure out which expenses you could have deferred and which ones you did not need to make at all. Also check whether you paid the full outstanding due of your credit card. Once you have studied the pattern, make it a point to set aside 20–30% of your income into savings.
As you go through this drill every month, work on setting a financial goal. This would include key targets like your retirement kitty, your wedding expenses, your children’s education, and the like. All the while, ensure that your expenses do not exceed your income.
There is another advantage of taking control of your finances. You can do without wealth managers. Sometimes, they may push products that offer them a fat commission and have little relevance for you.
- Choose your investment avenues
This is the operative part of your financial planning. Carefully weigh the options and allot your resources in such a way that the risks are adequately covered. A good way to begin is by creating a portfolio that will have a mix of risky, moderately risky and safe products.
- Risky: Risk is an important component of every investment. Most investors feel that taking a risk can prove costly for them. They would like to draw comfort from the fact that a lower risk will keep their investments safe. But, this is not true. In the financial world, the higher the risk, the better are the returns. You have to take a few risks to expect high returns. Investing in real estate or equities in the stock markets can be such investments.
- Moderately risky: You can consider investing in mutual funds that invest heavily into equities. Balanced funds are also an option if you are conservative. You can take help of fund managers to invest in such instruments. This way, you can rely on the services of professionals. The returns can be rewarding.
- Safe: Investors of all ages consider fixed deposits (FDs) the safest investment avenue. FDs can offer amazing returns over an extended period, guaranteeing the safety of the principal all along.
Bank FDs may not look very lucrative right now because of lower interest rates. But it is worth considering the ones offered by non-banking finance companies like Bajaj Finance. The latter is offering lucrative FD interest rates of up to 8.70% on a minimum FD of Rs.25,000. Post office schemes, retirement funds, the Public Provident Fund, and debt funds are also safe. They should figure in your investment portfolio. You can invest in them via systematic investment plans (SIPs) every month.
- Taking guard
It is great to have landed a job but that is no reason for you to neglect your health. Work hours can be erratic, early in your career. But you need to guard yourself from the after-effects of such punishing routine. Take an insurance—both life and non-life. With medical expenses shooting up, ‘Mediclaim’ policies are now a must-have.
Guard yourself with plans that can cover up to 10 times your income. Although not publicized much, term insurance is also a good option. The policies have a smaller premium if you buy them early.
So, now that you know a little bit about how to plan your finances, be the master of your destiny. Plan your own success route.