Article

3 financial habits every person in his 20’s must have

Nutan Gupta

27 Mar 2018

There is a famous proverb: "Life is a marathon and not a sprint". This saying is very apt in money matters too. One must not ignore the importance of saving for the future. In our 20’s we have lesser responsibilities. This is the time to start investing for the future to be able to make most of the long term investments. Time is the best investment and the longer you remain invested; the greater are the gains. One can benefit greatly from the power of compounding. Your financial decisions in your 20's are going to affect the quality of your golden retirement years too. Quicker you realize this, the healthier your financial statement will look. Here are three essential habits every person must have in their 20s.

Retirement Planning

Start investing

Don't just save. Invest! In our youth, we all want to enjoy our life. We experience financial freedom, and the urge to splurge is very high. That is what all young people do. So you too want to follow suit. But hold on, think a little about the future. You have plans of marriage, owning a home, higher education and the like. You do have options of taking loans, but that is a bad money decision. It is important to be able to fund your plans instead of relying on loans. It might not be possible to support it completely, but even if you fund it partially, it translates into a lot of savings.

The stock market offers a great way of saving and growing your income. There are instruments called mutual funds that allow you to invest small amounts every month. Even if you start a withRs. 1000 every month and continue spending you will be able to plan your upcoming endeavors correctly. Moreover, your money will be safe as the risk associated with managed securities is moderate. As a rule, one must invest 30% of his income. The remaining can be used up for expenses and spending. This way you are not completely deprived of the splurging.

Retirement Corpus

You have to think about your retirement early. It seems far off, and in your 20s you feel you will always be young. But by investing for your retirement from now, you will be able to spend those golden years without any worries. By planning your retirement and allocating funds you deem necessary, you can breathe easy of a peaceful and joyous old age. You can put out a percentage of your paycheck into a retirement fund and invest it in an aggressive instrument like equity initially. Later on, you can move this fund into a low-risk instrument. With every increment in your salary, you can increase the contribution to your retirement fund.

Emergency Fund

As a thumb rule, one must have six months of income ready under an emergency fund. You must save up this fund from your monthly paycheck and keep it as a backup in case of emergencies. You should be able to liquidate this fund easily. Ideally, you can save this in a debt instrument like a fixed deposit or recurring deposit or post office savings scheme. Initially, you can start by saving up one month’s income and then gradually build it up to a six months emergency fund.

Apart from these savvy money steps, one must ALWAYS have their life insurance and medical insurance in place. This two insurance should be a priority and are as important as these financial habits.

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mutual-fund

Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 

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3 financial habits every person in his 20’s must have

Nutan Gupta

27 Mar 2018

There is a famous proverb: "Life is a marathon and not a sprint". This saying is very apt in money matters too. One must not ignore the importance of saving for the future. In our 20’s we have lesser responsibilities. This is the time to start investing for the future to be able to make most of the long term investments. Time is the best investment and the longer you remain invested; the greater are the gains. One can benefit greatly from the power of compounding. Your financial decisions in your 20's are going to affect the quality of your golden retirement years too. Quicker you realize this, the healthier your financial statement will look. Here are three essential habits every person must have in their 20s.

Retirement Planning

Start investing

Don't just save. Invest! In our youth, we all want to enjoy our life. We experience financial freedom, and the urge to splurge is very high. That is what all young people do. So you too want to follow suit. But hold on, think a little about the future. You have plans of marriage, owning a home, higher education and the like. You do have options of taking loans, but that is a bad money decision. It is important to be able to fund your plans instead of relying on loans. It might not be possible to support it completely, but even if you fund it partially, it translates into a lot of savings.

The stock market offers a great way of saving and growing your income. There are instruments called mutual funds that allow you to invest small amounts every month. Even if you start a withRs. 1000 every month and continue spending you will be able to plan your upcoming endeavors correctly. Moreover, your money will be safe as the risk associated with managed securities is moderate. As a rule, one must invest 30% of his income. The remaining can be used up for expenses and spending. This way you are not completely deprived of the splurging.

Retirement Corpus

You have to think about your retirement early. It seems far off, and in your 20s you feel you will always be young. But by investing for your retirement from now, you will be able to spend those golden years without any worries. By planning your retirement and allocating funds you deem necessary, you can breathe easy of a peaceful and joyous old age. You can put out a percentage of your paycheck into a retirement fund and invest it in an aggressive instrument like equity initially. Later on, you can move this fund into a low-risk instrument. With every increment in your salary, you can increase the contribution to your retirement fund.

Emergency Fund

As a thumb rule, one must have six months of income ready under an emergency fund. You must save up this fund from your monthly paycheck and keep it as a backup in case of emergencies. You should be able to liquidate this fund easily. Ideally, you can save this in a debt instrument like a fixed deposit or recurring deposit or post office savings scheme. Initially, you can start by saving up one month’s income and then gradually build it up to a six months emergency fund.

Apart from these savvy money steps, one must ALWAYS have their life insurance and medical insurance in place. This two insurance should be a priority and are as important as these financial habits.