As we transition into our 20s and concurrent financial independence, there lies a lot to explore. Amidst all the fun and self-reliance kicking in, an important aspect to keep in mind is to save right from the start. Believe it or not, but the sight of savings bouncing back into your account after a stipulated period, is a feeling unmatched. It also enables you to spend your dough on more expensive products and services without causing stress on the pocket. We strongly feel it's high time we incorporate financial wellness in our education system. Now, till that happens, this is how in our little way, we can get started to secure ourselves financially.
Keep aside a partition of your 9 to 5 earnings:
In the first 1-2 months, you will get a fair idea of what expenses would you be incurring. On the top of our minds, there is travelling to work, house rent, amenities and yes of course, hangouts (or your dearest start up idea). After a careful examination, figure out what percentage of money can be made to move away into savings. Stay resolute on this. Look at introducing standing instructions for automatic deduction at the beginning of the month or immediately as you get your salary. Try and look at a minimum of 20%.
Plan a budget and stick to it:
Allocate portions of your money to your requirements and do not exceed them. At first it may seem challenging and also uncalled for, but keep at it. Eventually it will all start falling in place. Observe your tendencies to overspend and see where you want to restrain yourself and where you want to let loose. For instance, if you are a fitness enthusiast, you would not want to hold yourself back from investing in high quality activewear. Or being a healthy food lover, you would not mind buying herbs and sauces. But at the same time you might not want to buy a rocking chair for reading books. Figure it out!
For efficient tracking on a daily, weekly, monthly or yearly basis, try a free budgeting app or a spreadsheet. This will chart out your expenses and help your plan and analyse even better going ahead. It will map out where your money went.
Credit cards: boon or bane?
Take this decision very seriously! With all the lucrative discount offers flying around, credit cards do come handy. But they also exponentially increase your spending capacity. We are not suggesting that you don’t have one, all we are saying is that learn how to use them intelligently. Do not lean and relax on them. Depending upon your income, fix your credit card spending limit. Do not consider it as a fall back option. Use it where you feel it will be beneficial and restore the money immediately. Usually credit card spending can be paid back in 30 days, however don’t leave it for the last minute. This will save you from letting things spiral out of control.
SIPs and PPF are not bad
Systematic investment plans can be a great way to save taxes and multiply your money. Again, take this up very meticulously. Consult your friends working in banks or family members who would have invested earlier. A key point is to not expect immediate returns and being patient. Being a beginner, look at secure funds, once you feel you have tested the waters, go big. Get the basics of how to invest in low-cost funds, as well as how you can use dividend stocks to your advantage.
PPF or personal provident fund is a way of arranging for your pension. The money you put in here is locked for a longer period of time. There is a certain amount of money that can be put in every year. So this can be taken care of through your annual savings.
Get insured, for your own sake and for your loved ones
In the likelihood of any mishap that happens to you, this is what you leave behind for your family. Though no amount of money will equal your presence. Depending on the insurance policy that you take up, it may also account for a source of income post retirement. This may seem a loaded decision to take but take this one wisely. Research yourself or consult a professional. It is highly advisable to always know what the policy holds for you. This is one set of terms and conditions that you must not just skip reading and accept.
Love travelling? Make a travel fund. Been eying a new gadget? Save up for it. Make a fund that you would use to gift your parents something they wish for but for obvious reasons would not buy. Also, consider an emergency fund, some liquid money that can be exhausted for an unforeseen expenditure. Going by conventional wisdom, your rainy-day fund should be enough to cover you for three months’ expenses and should be sitting in an easy-to-access savings account.
Find your balance, weigh your priorities! It is never wrong to enjoy your life to the fullest but it is vital to plan your finances. It helps in building self-confidence at a subconscious level. Financial planning takes time. It is a skill that you acquire as you mature with age. Stay curious and look at ways that can help you multiply your wealth in the right way.