20s is a very confusing and frightening age. Most of us have just passed out of college and are in the first year of their job, others may have worked for some years but still aren’t quite sure whether they could continue doing this forever; at least till more 30+ years. When you don’t know whether you are an engineer, a business guy or an entrepreneur inside; making financial plans would not be your first priority. This is what you should be warned against, while you don’t need to get bugged up with heavy terms like OCR or LVR, you must have at least the following 6 things sorted out financially.
Power of compounding
Compounding is the ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. The major factor here is Time. We all must remember doing the sums of Compound Interest in our school days but did not really bother to apply them in our present life.
It was A = P(1+R/100)^n
P = principal money
R = Rate
n = Time; please notice that the time here is raised to the power, so mathematically speaking even if it is increased by one unit, other parameters remaining the same, there will be a huge difference in the final amount.
Advice : Start early, the earlier you start, more is the return on your principal.
2. Deciding on rent or buying a flat/home
Well, this is a very serious question and besides factors like number of years, income, rate of interest etc, geographical location also plays a major role in this.
For example if your average income is around 15 lakhs, buying a home could be a wise decision in Bangalore, but not in Mumbai. Every year the property prices vary and various other factors also play a role, based on which decisions should be taken. Check this report by Arthayantra for detailed information.
If you are not very sure, it best to consult a financial expert. After all, this is one of the most important decision of your life.
Yes, all the Insurance Ads just before a movie starts might have irritated you all this while but maybe it’s time for you to pay heed to them. Life is unpredictable, you might be young now without any dependencies, but later in life you will have a spouse and kids. Having a life insurance gives a coverage to your entire family.
Another thing which is very strongly advised, is to have a health insurance. After all if anything serious happens, you don’t want to pay 6 digit bills at the nursing homes from your savings account. Also, life and medical insurance helps you to save taxes under section 80C and 80D.
4. Invest in yourself
Skills is more important than money. You can save all the money you want, but if there is no increase in your income you won’t get to live fully amidst all the savings. For example you have no control when the petrol prices or the onion prices increase; some factors will always be out of your hand. With the technical boom in place, demand of specific skillset is rocket-high. Train yourself in a more specialized field in your job, so that you are eligible for promotions or can switch to a high-paying job. Higher income is directly proportional to higher savings.
5. Don’t become a credit card addict
Credit cards are for paying EMIs easily, or for times of desperate measures. Having said that, going to a brewery for chilling on a saturday night doesn't fall in one. The daily interest rate in an credit card is 0.041%; if you have a debt of say Rs 10,000, you would end up paying 4 rupees on interest everyday and yes it is compounded. So, become smart and think before swiping your credit card at a local grocery store the next time.
6. Plan for retirement
Depending on your kids for when you retire will be the worst thing you could possibly do. Also do not do the mistake of miscalculating the amount of money that you would need after your retirement. Refer to this retirement guide for an approximation.
The main mantra is to enjoy your present life but also making sure that you can have that long wished view of the Northern lights even if you are 70. After all, all’s well that ends well.