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A guide to saving and investing for youngsters
Published On , 12 Jul 2017 By TOI
At a young age, the urge to spend is hard to resist. I'm sure that starting out in a new work place and getting that first monthly cheque gives one a strong sense of independence and freedom. But with that independence comes the highly-dreaded responsibilities.
This is the phase when one makes important life choices, not only in personal life but in matters relating to finance too. These choices involve various desires: To be rich, to buy a house, to start a family, safety of the family and yourself, to have a safe retired life etc. Some of these needs may seem too farfetched right now, but sooner or later you will start thinking of them. And the sooner you sort them out the better it will be for you in future. Remember, your desires are your end Goals and to achieve those there are some basic investing principles you must follow.
HAVE A PLAN
Just like a house needs a blueprint before it is built, you must lay down an action plan to meet your Goals. You need to state your end Goals and also the factors that may have an impact on it, like how much and where you are going to invest, the investment time horizon, the risks you can afford to take etc. Remember, a plan on paper always works the best.
START EARLY, INVEST FOR THE LONG TERM
The earlier you start, less is the amount required to earn better returns. Say you start investing Rs 10,000 every month when you are 25 years of age, at 12% average yearly rate of return. At 55, you could expect a Rs 3.5 crore corpus. Now if you had started 10 years later, that is at 35, at 55, your corpus will be nearly Rs 1 crore. Your corpus shrinks by two-third just because you missed those 10 golden years of investing. Here compounding is the operating tool, while time is the amplifying tool. The more they work together, the wealthier you will be as an investor.
NO AMOUNT IS TOO LITTLE
You can start by investing as little as Rs 500 in a mutual fund, which works as a great tool for investing into asset classes like stocks, bonds and gold. This also inculcates the habit of saving and investing, and discipline in the long run. One needs to move on from ‘investing what is left after spending’ mode to ‘spending what is left after investing’. This maxim can ensure longterm wealth creation. As your income grows, start allocating more money towards achieving your Goal.
MANAGE YOUR RISKS
If you are new to investing, invest in different financial instruments so that your risks are spread across the risk-return spectrum. By such diversification, one gets a chance to understand various instruments and also gradually increase one's returns by concentrating the allocation. Remember, the advantage of being young is that you can take on maximum risks considering you don’t have many dependents. Just make sure you have the appetite for it.
FORM A GROUP OF LIKE-MINDED INDIVIDUALS
For every investor, learning from mistakes is a continuous process. By forming a group of people with similar financial position and aspiration, you can use the platform to share and learn from each other's mistakes.
GET HELP IF YOU NEED
Never shy away from asking for help, especially when it comes to investing for your future. If you are busy with your job or don’t have enough information to plan your finances, take the help of a qualified financial advisor to do so. People who are unable to devote adequate time for investment-related works, could get his/her money managed by most experienced investing brains through the mutual funds route.
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