You must be remembering the college days. How your parents took care of all the expenses. The tuition fees, hostel fees, the uniform fees, pocket money, the transport and food expenses. There was no need to worry about the expenses.
Then you got a job in Bengaluru and had to relocate. Life was great, but it’s here the problems began. The salary was good, but the money was never enough. The monthly expenses were so high; there was no money to save. Financial freedom was a dream.
It’s embarrassing to ask parents for money, after you start working. Most of your friends are availing payday loans to make ends meet.
Payday loans are unsecured, short term loans which must be repaid quickly. Payday loans charge high interest (This could be 1% a day), and must be repaid within 60 days. These loans seem great to avoid a financial crisis, but sadly these loans lead to a loan trap. They encourage casual spending and soon you’re in the debt trap. Getting out is very difficult.
Treating credit cards, personal loans and payday loans as an emergency fund, is a strict No. They charge high interest and you could struggle with repayments. If you want to get the first Rs 1 Crore after working, Investing is the way to do it.
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SEE ALSO: Payday Loan
How easy is it to get a crore after working? Getting a crore is all about learning. If you don’t upgrade (learn something new each day), you’ll never make a crore across working life. You need to use this knowledge to save, invest, borrow and spend wisely, to make a crore after working.
The youth in India must invest at least 30-50% of monthly income. Sadly, many youngsters who have just started working invest heavily in stocks, without doing their research. Investing in stocks without knowledge is like running blindfold on the road.
Don’t invest in risky mid cap funds, small cap mutual funds and stocks if you are new to the market. Avail services of a financial advisor who will help invest wisely, and take you on the path to riches. Financial advisors ask you to invest in mutual funds via SIPs.
Systematic Investment Plans or SIPs allow you to invest small amounts regularly in mutual funds, say once each day, month or fortnight in a mutual fund. Your money grows steadily and yields compounding returns. Compounding returns are return on return.
Many young people who are new to work life have only Rs 500 or Rs 1000 a month for investments. They invest in risky assets and lose everything. Why not invest just Rs 500 a month in mutual funds via SIPs?
Create an emergency fund for a rainy day. This money comes in handy in a financial crisis. You don’t need a credit card or a payday loan to tide over a financial emergency.
The emergency fund must be liquid, so that you can withdraw money in a hurry without penalties. The emergency fund must give decent returns without compromising on liquidity. Invest in liquid funds, debt mutual funds and short-term recurring deposits for emergency fund.
Many youngsters lack financial discipline and don’t invest even if salary rises. Always invest in sync with rising income. You enjoy the compounding benefit and reach financial goals quickly.
The best way to implement step-up investment strategy is the step-up SIPs. You increase SIPs periodically. Invest in mutual funds through SIPs. You then gradually increase the amount invested in SIPs, as your income rises.
You invest Rs 1,000 a month in a SIP of an equity mutual fund scheme for 20 years. Let’s assume a rate of return of 12% a year. The corpus at the end of 20 years will be nearly Rs 10 Lakhs.
Now, you invest in mutual funds via step-up SIPs. You increase Rs 1,000 per month each year. The corpus at the end of 20 years will be nearly Rs 65 Lakhs. This is a massive return and puts you on the path to riches.
Education Loan vs Investing
Many youngsters had availed education loan for professional courses like BE and MBA. Education loan may not charge high interest, but must be repaid in time. Tuition fees of BE and MBA are in lakhs, which requires sound financial planning to make repayments in time.
Late EMI repayments on education loan or a default mean bad credit score. A CIBIL score is a 3 digit number between 300 to 900, which helps banks decide on sanctioning loans. IndianMoney has tied up with Experian to give free credit score.
Don’t invest in stocks, equity mutual funds or even in fixed income before paying off the education loan. FDs give around 6.6% to 7.4% a year. Education loan interest rates are higher. Equity is a long-term investment. Invest with a time horizon of at least 4-6 years. Never invest living expenses in equity mutual funds and shares.
Make paying off the education loan a priority. Take up part-time jobs as a second source of income to repay education loan. If you get salary hike or a bonus, use this money to pay off the education loan.
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