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Smart financial planning can get you the smartphone at a lower cost
Published On , 18 Oct 2016 By Times Of India
In India, according to some estimates, more than half the population is below 25 years of age while over 65% are below 35. A large percentage of this young population are the millennials who are either already employed or will start working soon. This is good news. But the not so good news is that with neither any social security system, nor any old-age financial support system in place in India, when this population retires, they could face an uphill task in meeting their financial needs. To compound this, in India job security is also on the decline. Financial planners and advisors say all these reasons are good enough for the youth of today to put in place a financial plan for every financial need__short term, medium term and long term__as soon as they start working.
SIPS FOR SHORT AND MEDIUM TERM GoalS
One of the first things you should do is buy a health insurance policy, a family floater one, even if you have one from your employer. For this, settle for an annual payment term, which comes at a lower cost than the other payment options. Set up a monthly SIP in a short term Debt fund and keep withdrawing the required amount to pay the annual premium every year. This will be lighter on your purse, from both ways: You pay lower premium and also your money earns some decent return through the year.
Similarly rather than opting to pay EMIs for your smartphone, laptop, bike, car and other gadgets and objects of desire, plan a little ahead of time, set up short term SIPs and buy them with the money in those funds. A bit of calculation you can see that you are saving a substantial amount every year which you can use to buy some additional gadgets.
SIPS FOR LONG TERM GoalS
You should also appreciate that since you are will to start investing early in life, you have a host of advantages on your side, financial planners and advisors say. For one, you can take extra risks by investing a higher percentage of your investible funds in equities. Over time, the higher risks associated with equities are expected to go down and the returns will rise. Also since long term returns from equities are tax free, that will boost your portfolio size.
The next is that the power of compounding will kick in since you are willing to stay invested for several years. Since in the long run equities give a superior return than most other investments, at 15% average annual rate of return, you will double your money in less than five years, compared to a little more than 10 years if you invest in FDs.
With time on your side, you can also afford to learn from your mistakes as you invest and also go for a course correction. If you have less number of years before you retire, you can’t afford to make mistakes.
For building wealth for the long term, set up SIPs in top rated Equity funds. Start with a small amount, with as little as Rs 1,000 and keep on increasing this amount as your salary increases. For example, if you invest Rs 1,000 in an SIP with a 15% average annual rate of return, and increase this amount by Rs 1,000 every year, at the end of the 30th year, you can build a corpus of about Rs 4.8 crore. If you are a millennial, just started work, think about these and act.
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