If you are young and want to know how you can lay a foundation for a financially stable life ahead then here are the best ways through which you can start investing in your 20s. Investing from a young age will help you explore more investment options, allow you to take risks and offer you a chance to grow your riches by the time you reach your 30s.
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If you have just entered the professional world and want to generate good returns by taking a little risk then you must invest in SIP. If you are in your 20s then investing in SIP is an ideal option as you can start an investment with as little as Rs. 500. A systematic investment plan is a scheme that allows you to invest a fixed amount periodically in mutual funds. This way you can achieve your short term goals easily and also plan for your long-term savings.
In this age, you have time by your side and have very little liabilities to take care of. This is the best time to invest in riskier options as well as inculcate savings and investment habits. Taking a little bit of risk helps you grow your money in the long run as compounding works better for long-term investments.
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Chalk out your long-term and short-term goals and write them down in a piece of paper to implement your thoughts into action. Once you have jotted down your goals, it will act as a reminder and will help you to stay focused.
At this stage, if your primary goal is to fulfil your short term goals then you can opt for debt mutual funds. Fundamentally, debt mutual funds are a mix of debt income securities that do not have a fixed maturity date or give a fixed interest rate. To remain on the safer side you may also choose to invest in fixed deposits which are less risky options that offer moderate returns.
Tax liability must be borne by any person earning an income above a prescribed limit. At this age, professionals have lesser tax liability as the income is just above or within the lowest tax bracket. Hence, this is an ideal time to make investment choices that give your tax benefits. By investing in tax saving options, you can make the most out of your hard-earned money.
Diversify your investment portfolio and invest in both market-linked products and safe investment options. You can have a small investment kitty in FDs or NSCs. If your goal is to stay invested for a long tenure then you may also choose PPF.
But if your goal is to generate inflation-beating returns along with availing tax benefits then include ELSS in your investment portfolio. This will help you create a sizeable corpus while you stay invested for a longer tenure.
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An ideal way of keeping financial problems at bay is by building up an emergency fund that is sufficient to take care of at least four months of expenses. Most often people at this age spend excessive money towards their lifestyle. Young professionals often miss out saving for an emergency and fall in debt traps when a financial problem hits them. An emergency fund will help you to take care of the rainy days. It will make sure you remain financially stable in case of loss of a job or if you want to pursue a short-term course.
At the start of your career, there are very few liabilities that you have to take care of. This is an ideal time to purchase a health and a life insurance policy. Though it is fine to enjoy your life, you must first invest in options that help you to remain prepared for any life emergencies.
Life insurance is a pure risk-cover that is a must-have for earning professionals who commute daily to work. It ensures financial safety for your dependents at an affordable premium rate. By investing early you can get an insurance policy at low premium rates and have fewer chances of rejection of the proposal form. You will cover the waiting periods for riders and can reap its benefits when you require them. If you purchase the same policy say 10 years later, not only your premium would increase, you may likely to incur lifestyle or genetic diseases that may lead to rejection of your insurance application form.
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Just as you start earning you let your cash flow like Kardashians. But do not forget that these habits may lead you to excessive debt. You may also find it difficult to pay off your bills on time.
This kind of extravagance will not help you grow in life. Instead of spending excessively on useless stuff, it is better to divert your income into meaningful investment options. Installing financial discipline at the beginning of your career will help you to attain your financial goals on time. Initially, it will be difficult to regularly save money. But once know its benefits; you will never have to worry about your savings again.
Following these simple steps will let you remain financially independent and will help you live a debt-free life. Debt incurred for long term goals will also become easier to handle if you are financially equipped from a young age.
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