Financial Advice for young Indians
If you are in your twenties, this article is for you. Rewind your life and count how many years you have invested for your academic degree? Most of us have given 20+ years to earn a degree which hardly helps us to stand on our feet. I am not saying that you should quit your study. Knowledge is good and can be great if implemented correctly. In India, there are very fewer chances that you can apply your academic knowledge to make big money.
Financial literacy is the subject which never thought to us in our schools or college. Most of the Indians are lacking big time in terms of financial literacy. This should be a subject in every college. After all, our rat race starts right after our college days.
It feels great when you get your first job and even more happy when you get your first salary. You are now financially independent. While you are enjoying your initial years of career, here are some of the financial advice or tips which will help you to manage your finance better. It will also help to set you financially free at the early age.
At your initial career, you have less responsibility so you can save a good amount of money every month. Save at least 30% of your salary every month. It’s good to start early and invest your saving for your future goals. You can even use goal-based investment method. If possible invest for a long time as compounding works best in the long-term.
Understand how tax structure works in India. Do it even if you are not from commerce background. It’s important to understand the different clauses under which you can save income tax. Invest in ELSS mutual funds which are tax efficient. You can claim up to Rs. 150000 under 80C of income tax act. You can earn about 15% returns on your investments in a long run.
Buy Term Insurance
Don’t forget to cover yourself with term insurance. Go for term plan only for risk cover, don’t go for risk cover and returns plans, they are confusing and never give you good returns. I personally don’t believe in LIC policies ever. It hardly gives you any returns. Do not mix investment and insurance.
Build emergency fund
The purpose of the fund is to keep you going in case of something goes wrong. Yes, life is very uncertain and never goes as per your plan. Accept it!! The emergency could be anything like loss of a job, accident, sickness or anything else. The fund should be large enough to cover your 6-8 months of expenses. Get the tips on How to build an emergency fund?
You can even put your emergency fund amount into liquid funds. Which gives you fix deposit like returns. Here the benefit is you can withdraw your money at any time you need without any exit load.
Don’t take loans
This is the most important point I would like to make here. As a young professional, we tend to achieve more and more, sometimes even before the right time. With every salary hike, we wish to full fill our dreams. We then tend to take loans and stuck up in the vicious circle of debt. One should rather invest that money to get good returns. Secondly, at the initial period of your career, jobs are not stable or you want to switch the job frequently for some financial gain. Sometimes you made a wrong decision and ruin your career. You will not be able to pay your debt and go bankrupt. This is the most common story of young professionals in India.
Take risk, get rich
Want to be a billionaire? yes, it’s possible as you have the advantage of age and compounding works best in the long run. Invest in equity which gives you best returns among all the investment avenues. If you don’t have time to sit in front of the stock market or lacking knowledge, leave it for experts. Invest in equity mutual funds which give you around 15% returns over a long-term. You can buy your dream house after 10 years as you will have a good corpus by then. You should diversify your investment into 3-4 options like equity, gold, real estate etc.
Stop spending on wedding
In India, I have seen people are spending a lot of money on the wedding. I know it’s an important event of the life, but overspending is not a good idea even if you can afford it. There are families who spend heavily on a wedding just to maintain the status in the society. They even take a loan for the wedding. According to me, it’s a foolishness to take a loan for any of the life events.
Differentiate between need & want
Nowadays it’s very easy to spend money on anything you DON’T even want. Ask yourself before spending that whether actually you want that stuff or it’s just your impulsive nature which makes you spend on it? Ask a series of WHY to yourself until you get the actual reason for your spending. You can find more details on 5 WHY of spending here. I have tried this method and believe me it’s very effective. So, next time when you are pooling your wallet out of your pocket, ask yourself WHY??
Have a budget
Do you know where all your money has gone? keep a track of your spending, have a budget. Don’t just have a budget for estimating your expenses, rather have a saving target for each month. There are many software and mobile apps available for free which helps you to manage your budget and helps you saving money. Check out the Best budget app here. Studies have shown that tracking your expenses makes you conscious of spending which helps you to save money and achieve financial goals.
A lot of people misunderstand being rich is how much you earn, it’s not true. Being rich means how much you save. Having strong finances is depends on how much you save and invest.
Must watch this short film.
It Doesn’t Matter How Much You Make, It Matters How Much You Save