There is no kidding with the power of compounding. It really works. So start early, even it is only Rs 2,000 in a mutual fund SIP (systematic investment plan). Remember the adage ‘the early bird gets the worm’. Rs 2,000 set aside each month for 10 years (i.e. Rs 2.40 lakh) in an investment fetching 10 per cent p.a. will amount to Rs 4.10 lakh at the end of 10 years. If you continue this for another 10 years, it amounts to a whopping Rs 15.18 lakhs.
Have a budget
A budget gives you control over your finances and a direction to your spending. It ensures that you know where your money is going with the idea that you can then distinguish between essentials, necessities and luxuries. However, definitely allow for some extravagance. What’s the point of working hard if you can’t enjoy it and enjoy it now. But set a limit for these extravagance and stay within the limit.
Buy insurance cover
You may not have any dependents today. You do not have any loans. You only have some assets. But tomorrow, you will have dependents or financial obligations towards say, your parents, spouse and children; and liabilities like a car loan or a home loan. You will need insurance then as you wouldn’t want to leave your loved ones without financial security or with a burden of loans. Life is uncertain. Buying insurance when you are younger and healthier becomes cheaper.
Credit card usage
Credit card is very powerful and seductive and before you know it you could be in its grip. Spend on the credit card only what you can afford to pay off the total outstanding balance without having to take a loan or go through a cash crunch. Always adhere to the due date, pay up the entire outstanding and never withdraw cash on your credit card.
Your life should definitely culminate to style, comfort and luxury. No point of all the hard work, if your retirement has to be in penury or sub-standard. Work hard now but put aside something for tomorrow.
Set your financial goals
Identify you goals and put a monetary value to them. You can achieve your goals only if you save for them systematically. Only if you can see the bull’s eye will you be able to even hit the target. So planning is the key.
A simple advice but if you follow them, they can make a world of difference to you by bringing you peace of mind. Once your finances are in place, you can go on with life as a carefree 21-year-old.
—The author is a Certified Financial Planner and Board Member of Foundation of Independent Financial Advisors