Start financial planning when in your 20’s
When you’re in your 20’s you don’t have any huge responsibilities to take care of and you end up spending a lot of your salary. You may not realize it now, but, soon, you will face a situation when you will have no money left to save for your future. It is important to have a plan to fall back on.
A financial plan will not only make you disciplined, but also help you achieve short-term as well as your long-term goals. Building a financial plan is simple, you can take simple steps in your day to day life to manage your finances.
Pay off your existing debts as soon as possible
Your first step towards financial planning should begin with eliminating existing debts, as its accumulation can affect your future plans. Existing debt could include your credit card bills, or your student loans or even auto loans. Compounding effect of interest is something you do not want to face. Especially in case of credit card interest payments. Debt reduction will help you save up more in the future.
You have to track your expenses and control them. Follow a budget, give priority to necessary or unavoidable expenses, this will help you to understand your needs and your wants. To facilitate easy management of your expenses, you can set auto pay instructions in your account to pay your monthly rent, electricity bills and mobile bill, etc.
A major part of financial planning is to know your short-term goals, i.e. those which can be covered within 6 months to 1 year, your medium-term goals, i.e. those you plan to meet in 5 to 10 years and your long-term goals, those which are still a good 10 years away. This will help you to plan savings accordingly to meet these goals. Suppose you want to buy a car in the next 1 year then you will need to save as per the cost of the car you want to buy.
Save and Invest
As soon as you get your monthly salary, the first thing you should do is keep aside a part of it for investment. A diversified investment portfolio will minimize the risk of investment. You have the option to invest in fixed deposits, mutual funds, equity, bonds, debentures, or as SIP, etc. It’s important to choose those saving options that can help you achieve your goals. From the total number of visitors on our website, we observed that those aged between 25 to 30 years are able to save on an average, about 57% of their salary, which is a pretty good number. Don’t be disheartened, if you can’t save 57%, even if you manage to save 10% every month, till you retire, you can have a good retired life.
Life can be uncertain and you need to be prepared for it, but, when you are in your twenties you usually do not think about covering for your risks. Having a life insurance and a medical insurance will protect you from the uncertainties of life. Also, keep aside part of your salary for an emergency fund for better management of any risk you might face in future.
Tax planning right from the start of your career will benefit you in the long run.
You need to know, which investments will give benefits as a tax deduction and how much you can invest in them. It shouldn’t be that you invest in too many places and don’t have a lot left for your current needs.
It’s never too early to save for your retirement. In your 20’s your financial responsibility is limited, this means that you can save more towards retirement. You can maximize the benefit of compounding by saving and investing from an early stage of your life. By doing this you can enjoy your retirement like a vacation you always wanted.
A sacrifice now will be a reward in the future. So, have a well thought financial plan and it will lead you to a steady and peaceful future.