Many youths graduate from reputed colleges and get well-paying jobs. Sadly, in spite of a good salary, they save nothing. They avail personal loans at high-interest rates or simply swipe their credit cards. Now, credit cards charge a high interest of 2-3% a month. The young people get a good job, a high salary and then land in the debt trap. So why does this happen?
When you were in college, parents paid the bills. Even if you had lifestyle expenses of Rs 20,000 to Rs 30,000 a month, your Dad would have paid it off. So, when you land that first job, you don’t know how to manage money. When managing debt is so difficult, how would you accumulate a crore after working? Let’s find out.
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Youngsters seek the highest returns in a short time. They take risks by investing a lot of money in equity mutual funds and stocks. Now, stocks are a great investment giving high returns at high risk. But, if you invest in stocks without understanding them, it’s a big risk and you lose money.
Most youths are dissatisfied with the low returns from FDs or the lock-in period of PPF. The fixed deposits give returns of just 6-7% a year, while the PPF currently offers 7.9% for the October-December quarter. PPF also has a lock-in of 15 years.
Equity mutual funds give returns of around 8-12% a year, but you must stay invested for 5 years or more. The impatient youth want to profit in months and incur heavy losses.
Invest in equity mutual funds or tax-saving mutual funds called ELSS through SIPs. The systematic investment plan or SIPs are a method of investing in mutual funds. You invest pre-defined amounts regularly say once each month, in a mutual fund scheme of your choice.
Invest at least 30-50% of monthly income based on risk profile. Use the remaining amounts for EMIs, monthly expenses or to repay credit card dues.
See Also: Types Of Investment Plans
Don’t neglect that emergency fund when trying to accumulate Rs 1 Crore. Create an emergency fund and have at least 3 months of living expenses if you are unmarried. Make these 6 months if you are married.
Make sure the emergency fund covers loan EMIs, insurance premiums, utility bills, and household expenses.
Let’s say you are able to save 50% of your salary each month. But, are you able to save tax and meet financial goals? If not, you definitely need a basic financial plan.
You must first build an emergency corpus of 6 months of living expenses. Then, get a term life insurance plan to cover any dependents or if you have major loans to repay like a home loan. Get a family floater health insurance plan to cover all family members against emergency hospitalization. You must then do efficient tax planning by looking at after-tax returns of investments called tax-efficiency of investments. You then invest to meet short-term and long-term goals.
Try to get a part-time job to reduce the education loan burden. You get some extra money and can easily repay the education loan. If you get a hike or a bonus, use this money to pay off the education loan.
See Also: Best Investment Plans for 2019
Start saving for retirement from the first day of your first job. Let’s understand the importance of retirement planning through this example. Raju is 40 years old and plans to retire at 60. Based on his average living expenses he would require Rs 3 Crore at retirement. Do note that Raju has started retirement planning at the age of 40.
Let’s say that Raju invests Rs 10,000 a month for 20 years in a SIP of equity diversified mutual fund. He gets 12% compounded returns. He gets Rs 1 Crore at retirement. This amount would not be enough for retirement. Use IndianMoney Investment Calculator to calculate the figures.
If Raju had started retirement planning at the age of 30 years, he would have accumulated Rs 3.5 Crore at retirement. This shows the importance of doing retirement planning at an early age.
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