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ou muddled through your early and mid 20s in an auto mode.
No one grudges you that (we all did the same!).
Now, the big 3 is fast approaching! It's time to change gears.
How you manage a few major life choices can make or break your financial future.
So make a promise: no excuses, just results!
1. Make saving a habit
Don't belong to this archaic school of thought? The alternative is a life without money.
At this point, you are probably thinking of settling down. If you haven't already, that is. In that case, what legacy will you leave behind? One of no money, no home to call your own, no emergency cash?
Petrified? Let's get down to the nitty-gritties.
i. Limit your weekly multiple withdrawals from the ATM.
Estimate how much cash you will need to last you the week, and make only one withdrawal. If you have any money leftover at the end of the week, save it for the following week's expense.
ii. It sounds clich�d, but don't blow up your entire salary. Begin by saving small amounts of your income. Increase it slowly to 15% to 18% of every salary. The important thing is to save consistently.
iii. Take a look at your expenses.
Write down what you spent on this month. Wardrobe? Entertainment? Travel? Cell phone bills?
Try to then save on each of them. Check them next month and see how much you have saved.
If you didn't save any on say, re-examine what you are doing and try again.
2. Get debt savvy
Let me say this again: debt is the privilege of spending money you don't have.
The entire banking industry has flourished because you can't wait to buy things with your own cash.
All of us raise debt at some point in our life. But what is important is the shape and size you welcome it in -- home loans, personal loans, overdrafts, credit cards, moneylenders, etc.
Your life mandate henceforth should be to choose the lesser evils!
A home loan? Yes. You can't fund one of the largest purchases in your life by yourself.
Personal loan? Only if the end use is a necessity.
Credit cards? Use them to make purchases. But pay back within the credit free period.
Plastic can be a terrible debt mate. So if you are a compulsive spender, call your bank and insist they lower your credit limit. You are better off keeping it at an amount you can pay off easily every month.
The idea is not to raise debt randomnly. Every loan has a purpose. Get the purpose right.
3. Get insured
Hope for the best, prepare for the worst. This should be your financial guiding light.
Get insured today. There are a number of insurers who will serenade you for a policy. Give in. You owe yourself that much.
This is the ideal time to buy a policy:
- You are in good health.
- As a result, premium costs are lower.
- You are less likely to have a pre-existing condition that disqualifies you.
Now move on to your other assets. Make sure you have adequate auto and home insurance.
If you are an entrepreneur, this is of paramount importance, as you don't have an employer who buys you the coverage.
Self-employed? Insulate your assets. Consider forming a limited liability corporation. It is easier to set up and maintain than most other corporate forms and will make it harder for creditors to go after your personal assets if you mess up.
Make sure you are adequately covered. Complement that with a substantial length of coverage. And do choose your insurer carefully. After all, you want the company to be around when your heirs need the money!
4. Start investing
i. Get a demat account.
ii. Get yourself a broker. You have age on your side, so it is the best time to invest in equity.
iii. Start small and start sensible. No need to binge with your life's savings.
iv. Don't stick with just one kind of investment. Spread your money across mutual funds, industries, stocks, small savings and fixed deposits.
In life, when some chips are down, some are always on the rise. That is why we diversify.
One good strategy is to have a portfolio that covers three categories -- a stable fixed investment (post office saving scheme, a bank fixed deposit, a debt fund), a growth investment (equity mutual fund, stocks -- FMCG and banking are good bets), and a balanced fund.
v. Avoid tips and those that promise a fast buck. Else, you may well end up entering your 30s with a fair amount of your savings wiped out.
Some questions you need to ask are:
- What has been the stock's performance over the last few years?
- What are its future prospects?
The crux is to make well informed investment decisions.
Investing in the stock market or mutual funds is akin to buying a home.
You will not buy it till you actually see it. Compare it with others in the area. Do your own research. Speak to people/ brokers. In short, you want your hands on every little bit of information you can get before you cut the final cheque.
Treat your investments the same way.
5. Get financially literate
There is a difference between formal education and financial awareness. Ensure your correlation is not negative. You cannot enter your 30s being intimidated by money and financial planning.
All you need to do is set aside a consistent amount of time each day for reading and research (make that selective reading).
Have you invested in an equity mutual fund? Know where the market is going in general and how your fund's Net Asset Value is moving correspondently? Have you taken a loan?
Read about the general trend in interest rates. You never know, it might be a great time to switch your loan. And you don't want to miss the bus!
Remember, money (and your investments) is not a bike which follows the dictum of fill it, shut it and forget it! Please be aware of whether your investments are multiplying or regressing.
DON'T MISS!
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