Current around 60% of the population in India is young below 35 yrs age
and they are the ones who are actually running the whole economy. They are the
major contributors to the GDP and also are the current and future leaders of
the nation. While everyone is considering them to be instrumental to the
success of this country, there are concerns about what makes the young
generation successful financially and how to do it.
The changes in the job sectors and high growth in the employment by
private sectors, the financial power of an individual is significantly higher
in the hands of younger people as compared to few decades back. However the
spending patterns for them has also changed along with this high income, buying
consumer durable items (electronic gadgets), eating out and shopping is not a
rare phenomenon anymore, rather a common weekend activity. With such sharp
changes in lifestyle we increasingly miss out on an old school thought, the
emphasis on savings. The tales of youngster being in debt and depending upon
credit cards is becoming a common phenomenon. Hence, the old habit of savings
is slowly being replaced by overspending. In such a state, we need to think
about why despite having more financial ability we still suffer from lack.
‘Enough’ is not a commonly used word and this points to an unfortunately common
phenomenon of the lack of savings and investment.
There are people who despite starting the months with good money in
account left with hardly any money at month end. Sometimes despite being
serious about savings we are unable to save, and the intentions are often not
reflected in the action. Why is this generation not being able to save and
invest successfully? A miniscule percentage in our country invests. A simple
change in lifestyle could possibly change this habit. Let us see what steps can
be taken to make your investment journey a success.
1. First asses the Income and Spending
It is essential for anyone to know how much he is earning. The
distinction between gross income and net income should be clear in the mind of
everyone. Gross income is the salary from which tax deductions, and
contributions to Employees Provident Fund is made. The balance is known as the
net salary or the salary we take home. After that we should asses how much we
are spending we can do it by keeping the shopping bills, credit card bills and
checking the list of transactions on the net banking account. After that we
have to decide about savings, the basic way to save is by analysing how much we
spend and the avenues of of expenditures. Then we should try to identify the
areas where we can cut down and slowly start savings. Simply speaking, total
spending deducted from net income is your savings. Hence, if we don’t have any
funds at the end of the month, we need to start figuring out our spending
habits and start saving.
2. Define the Goals
Saving without goals is like a journey without destination. Goals are
milestones/destinations in life which we wish to achieve for personal
gratification. To be able to make a list of goals, the best and probably the
most effective way is to put the goals along a timeline. Goals can be defined
as:
- Short Term Goals: These are goals that
have to be achieved in a short span of time say a year or two years. These
are goals for which we may need money immediately.
- Intermediary Goals: These are goals that
are a little further away. There is still time left for investments and
wait for the returns to generate a decent corpus. These goals could be
five years or seven years down the timeline.
- Long Term Goals: These are goals which
are usually to be achieved at an advanced age like retirement or goals set
out that you wish to achiever after ten years, or fifteen years or even
further.
Once we have decided about our goals based on the above mentioned three broader
timelines, we can start planning our investments based on these.
3. Find Out Your Total Savings
Savings means the money that is lying idle or in savings accounts for
more than six months and is not being utilized to generate returns of any kind.
We can collect all the money and get a definite number on your total savings.
If we are been working for a few years now and only have few thousands in the
account means not very good sign. The amount we save speaks about our finances
more than our net earnings. Hence, it is time we should took an assessment of our
savings and see where we stand financially.
4. Know Your Investment Needs and Risk Taking Ability
Another important aspect that defines our investments is our risk taking
ability. There is nothing wrong in being careful or even wanting to make
profits. In most personal goals it is seen that calculated risk is an essential
component to generate returns and facilitate the growth of the corpus. The everlasting
question a lot of investors ask is, does the risk determine the investment need
or the investment need determine the risk. Let us consider a scenario where our
personal goal is buying a house in the next five years. It means we might need
a big corpus and traditional method of investment may not going to be enough.
In this scenario, investment in stocks or equity mutual funds becomes
necessary to give that extra boost. We should not let our risk taking ability
be a hindrance to your investment needs; however we should avoid having
unrealistic expectations and taking unnecessary risks.
5. Have a Proper Investment Plan
A proper investment plan is a comprehensive map which shows how the
money is being channelled into various investment instruments. Investment plan
also becomes our personal guide which tells us regarding various due dates for
investments i.e. when the insurance premiums have to be paid, or monthly date
for Systematic Investment Plans (SIPs). As an investor we can make our own
investment plan. However, seeking a financial advisers help may give a better
and holistic approach for investments.
6. Cover for Life and Health: It’s very Important
We can fulfil our financial goals only if we live a healthy life.
However, we cannot get so optimistic that we ignore the inevitable death. Get a
term plan based on earnings which gives sufficient coverage of as long as 70 -
75 years at least. You can get a higher term plan or have a greater coverage in
the same term plan once our income increases. If we are switching jobs and your
new organization does not provide insurance facilities then we may have to
increase the coverage or if we are
becoming an entrepreneur then we must increase our term plan. we could also
look into family floater options for
health insurance that covers an entire family for a stipulated premium.
Insurance not only covers us for health but it also protects our family
in case of an untoward situation.
7. Start Your Retirement Planning
As investors we tend to ignore the long term goals. Ignoring the goal
of retirement planning can be the biggest mistake and cost dearly at
the time of no regular earnings. This corpus is to support us during the
retirement days. Hence, planning for it is absolutely crucial. We do not have
to start investing lump sums at an early stage because we will have other goals
to focus on. However, a small sum invested every month through SIPs could
take you far. Just disciplined investments, even if they are small sums could
be enough for a retirement corpus.
Hence, start retirement
planning and do it now.
8. Emergency Fund is for Emergencies
An emergency fund is what we will rely upon when we have to tackle a difficult
financial situation that was not anticipated. An emergency fund should consist
of 3 to 6 months of monthly income. The key to having an emergency fund is easy
access to funds without disturbing ongoing investments. Hence, we should not
invest the corpus for emergency fund in instruments that have a lock up period
such as Equity Linked Savings Scheme or fixed deposits. Liquid
funds in Mutual funds could be a good option for such corpus where we can
invest for as less as a week. A successful investment plan must include an
emergency fund so that despite adversities we can lead a well-planned life and
the corresponding investments continue to run smoothly.
9. Rebalance and Readjust Your Portfolio:
It’s an ongoing process not just one time
Making an investment plan is an ongoing and continuous process we should
not think it as a onetime thing. Investments are instruments that have to be
changed based on our needs and time. The investment plan that was ideal when at
the starting may not be the same when the investors are middle aged and at the
peak of their income. An investor in their 60s will have a different investment
plan than an investor in their 20s. A successful investment plan is that which
is reviewed and boosted periodically.
. 10. To Conclude
The young generation is the backbone of the country as well as the
economy. They represent the present and the future of the country. This young
generation has to ensure that they, the driving factor, are also driven by the
right objectives. As professionals one should and must enjoy their lives and
grasp all that life has to offer. However, it should not come at a heavy cost
to our future needs. The young generation should become aware about the
investing options and slowly the wave should change from savings to
investments.
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