We spend roughly 16 to 18 years of our lives learning a lot of stuff about the world and acquiring skills to get a job so that we can earn money.
The shocking fact about our education system is that during these years, we aren’t taught to manage and invest our money properly. All the knowledge that we gain is either through our parents, friends and family, advice from colleagues or via articles in finance magazines. And of course there is Google.
If you are between the ages of 21-25 and have recently started your career, here are 21 things that you should be aware of to help you invest and manage your money + live a better life.
1.) Learning to SAVE
Get into the habit of saving and re-calibrate your definition of savings from:
Savings = Income – Expenses to
Expenses = Income – Savings and aim to save atleast 20% of your salary to start with
e.g. if you earn Rs 30,000 per month, first save Rs 6000 and then budget how to spend the rest of your money.
2.) Budgeting your Expenses
Get into the habit of writing down your expenses and budgeting for your expenses. This will give you a view of exactly how much you are spending and where (so that you can later analyse if the spending is on your needs or wants).
Another advantage of this is getting additional savings. Let’s say you have budgeted Rs 20,000 to buy a phone. However, you end up getting a online deal for Rs 15,000 – That’s an additional saving of Rs 5000 for you. If you invest and forget about it, it can become almost Rs 14 lakhs by the time you retire.
3.) Having an Emergency Fund
Build a secret savings fund roughly equivalent to 3 to 6 months of your salary. Keep it in a liquid investment asset and forget about. You will thank yourself when you suddenly need money in an emergency or lose your job.
4.) Do you really need it ?
Learn to differentiate between your needs versus your wants. Yes, you need a cellphone but do you really need the new iPhone 6 (Yeah, think hard about if you really need it at Rs 56,000, which if invested instead, can become an eye popping 1.5 crores in 40 years time)
5.) Learning all about Personal Finance
Do you understand inflation, investments, mutual funds, bonds, tax planning investments, CAGR, term insurance, etc ? If not, make an effort to learn about all the aspects which impact the growth of your money. In personal finance, ignorance is not bliss.
Don’t be in a hurry to take a house loan and load yourself with an EMI early in your career. Life without an EMI gives you the freedom to explore and do a lot more in life. If you have an education loan, take advantage of the tax benefits and pay it off accordingly instead of paying it all off in the shortest time possible.
7.) Credit Cards
Get a credit card as it offers free credit for 45 days but learn to use it wisely. Don’t roll your monthly balance but instead pay off the full outstanding amount. If you roll your balance, you will end up paying very high interest rates – It’s free credit for 50 days, not free money so use it accordingly.
8.) Credit Score
Indians now have a credit score from CIBIL. However since you won’t be eligible for significant loans to build your credit history, use your credit card effectively to build a good credit score. Don’t default on a payment as it will get recorded in your credit score and come back to haunt you later in life when you need that house loan.
9.) Don’t Trust your bank blindly.
A bank relationship manager’s primary job is to make more money for the bank. And they do it by getting unsuspecting young people to buy pricey investment products (like ULIPs and Endowment plans in the name of insurance and investing) – Be very sure of what you are buying from them, and ask them if the returns they are guaranteeing they will give in writing.
10.) Start Investing Early
Start a systematic Investment Plan as early as possible so that they are invested in long term growth assets. If you leave your salary in the bank or in a FD, it will not grow enough even to meet inflation
You should ideally have just two types of insurance policies – a life/term policy and a health insurance policy. Stay away from ULIPs / Endowment Plans
12.) The Stock Market
Resist the temptation to day trade. Just like casinos where the house ultimately wins, similarly in the stock market, if you do day trading, your broker always wins (whether you make or lose money) Instead, take a few months to read about Value Investing, do research on companies that you would like to buy, and then invest for the long term.
13.) Power of Compounding
This is part of the magic which makes your money grow exponentially in the long term. When it comes to saving for the future or for retirement, all of the money you earn in interest is made in the early years of your life, not the final ones, and you can never make up for that later. Don’t blow your chances.
14.) Get a flat stomach
Make an effort to stay fit. Not only will it keep you better energized to do your work but you will look better to – And while no one will admit it in the corporate world, better looking people do get an extra advantage. On the other hand, if you are obese, you won’t be able to really enjoy the good things in life – clothes won’t fit, good food will be bad for your heart, self esteem issues etc – so yes, get a flat stomach and more importantly, keep it that way
Get into the habit of traveling. It doesn’t have to be exotic international vacations from the start. Travel locally – there are amazing places to visit in India and it opens up your eyes and teaches you about life unlike anything else
16.) What makes you Happy ?
Think about it, and then some more. An easy way to do it is to imagine if you won a lottery of Rs 100 crores tomorrow and never had to work again in life for money. What would you do next in life ? It will be easier to plan your money accordingly.
Spend some time at a local NGO helping them in your area of expertise. Apart from meeting new and interesting people, you will experience a joy which comes only from giving + you will improve your communication, interpersonal and technical skills.
18.) What would you want to be known as ?
We usually don’t think about this early on in our careers but try and build a career around what you want to be known for – where your name would come up on the first page of google search if someone typed your area of expertise. Go vertical instead of horizontal.
19.) Make Good Memories
You will make money and lose money. However, what will really stay with you are good memories – So make good memories when you are young – doing crazy stuff with friends, time spent with family, pursuing a hobby, learning to play a musical instrument etc etc – In a couple of years from now when you meet your friends for a reunion, all you will talk about are the ‘good old days’.
20.) Focus on the Positives
There is too much negativity in the world. Try and focus on the positives. If your boss asks you to do something, figure out a way to get it done instead of complaining or coming up with excuses about why it can’t be done.
21.) Chase Excellence
Focus on being great (not just good). The money will take care of itself.
We could probably come up with a few more but we believe if you can imbibe some of these at an early age, it will help you improve the quality of your life.