The mid 20s and 30s are the most exciting years of your life, more so because you have just started earning and need no longer depend financially on parents. Nothing can match the joy of spending your hard earned money treating loved ones and yourself.
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Money is hard to earn and just as easy to spend, Right? That’s why the month-end blues. You might make a joke out of it and continue the same, despite vowing to save from the next month. But you should bear in mind that time moves swiftly and so does money. Therefore, you need to save and invest. You need to create a corpus for retirement.
It’s early in your career, and you might be earning peanuts. Therefore, it’s tough to manage money. So, here are some tips to handle your money better:
1. Set clear goals:
You should be clear with your goals: financial, higher studies, retirement, car, house, wedding, family, etc. There is only so much money that you can assign to each of your goals. Therefore, you need to set goals and define them as clear as you can.
2. Start saving:
Once you have set goals, the next step is to start saving for them. You can only invest if you have enough funds to do so. Long-term goals like retirement can be provided for slowly and steadily. But, short-term goals like higher education cannot wait long to be fulfilled. Therefore, start saving, Right Now.
Now that you have started saving, it’s time to invest. Investing early brings financial discipline in life. You also get to benefit from the power of compounding effect on investments.
You may invest in short-term debt funds, i.e., Mutual Funds (MF) with a maturity period of 1-3 years. Such MFs invest in debt instruments like FDs, Commercial Paper, etc. You may spread your funds in a mix of a debt-equity portfolio for mid-term goals. For goals maturing beyond 5 years, you may invest in equity.
4. Credit score:
To achieve goals in life, loans are a must. They help you get to goals when you cannot do it single-handedly. Therefore, start building a strong credit history and a good score. Only then can you get loans in the future.
If you have no credit history, you may build it by using a credit card. Be sure to pay the bills in time. Credit Bureaus like CIBIL, record your repayments based on which your credit score is calculated. Also, be sure to close all your loans in time, however small they may be. This helps in building a good credit score. If you are denied a credit card because of a bad credit score, you can apply for a secured credit card. Avoid ATM withdrawals using credit cards.
5. Insure yourself:
Start with a Term Life Insurance especially, if you have dependents. Premiums of a Term Life Plan remain same throughout the policy term. Hence, it is also economical. Get Health Insurance and protect yourself from rising medical costs.
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By all means, you should try and avoid getting into the debt-trap. Reduce your outings by a small degree and see how the savings turn into a decent corpus in the future, provided you invest it.
7. Emergency fund:
In today’s world of volatility, you never know when times of need arise. You could lose your job, but life still goes on. Therefore, divert some of your savings to an emergency fund. Ideally, you should keep 3 to 6 months of savings in your bank account as an emergency fund.
8. EMIs towards depreciating assets don’t increase the value:
Your career is not very stable in the 20s. You will still be exploring and experimenting with almost everything, including jobs. Hence, you should avoid buying expensive assets like cars, etc. Even though you pay EMIs, it won’t increase the value of the asset, because they are depreciating assets.
9. Postpone buying a home:
Do not buy a home very early in your career. You may be eligible to get a Home Loan, But again, do not buy a home unless you have ready cash. Availing a Home Loan will adversely affect other financial goals.
10. Keep increasing your quantum of investments:
Come what may; do not raid your retirement corpus. Your emergency fund should rescue you in emergencies. Also, increase the amount of investments that you make year on year. Do not forget inflation and salary hikes.
Be Wise, Get Rich.
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