All young people who have recently embarked on their professional journeys, have every intention of following the adage, ‘live your life to the fullest’. And why not. You’ve just started earning, have little or no financial obligations, and have the tendency to spend more. However, sometimes the propensity to spend is so much that you end up borrowing money from others to spend on your lifestyle, which de-stabilizes your financial standing.
In the early stages of their career, especially in the 20s, youngsters usually don’t focus on saving and investing their money. They also have certain misconceptions regarding financial planning, which leads to delays in starting their investments. But most of them don’t realize that this delay could cost them a good quality of life in the future.
Once these misconceptions are cleared, though, it’s not very difficult to plan for your financial goals. Take the time to focus on investments that can help you enjoy financial freedom.
Table Content
It’s not the Right Time to Invest
Young people think that early investment or insurance is something they don’t need, as they don’t have any financial obligations, which becomes the key reason for postponing investments early in life. If you start investing in your 20s, you can easily work towards a robust financial planning.
When you start investing early in life, especially in insurance, you will get a high cover at reasonable premiums. The insurance companies also encourage people to buy insurance at a young age, as you are in good health and can easily get insured at a low cost.
Take a look at the table below. If you get insurance cover at the age of 25, rather than at 40, you can save Rs.3,186 annually on your premium and can get life cover throughout your working life.
| Age | Annual Premium Amount |
|---|---|
| 25 | 6,018 |
| 30 | 6,608 |
| 40 | 9,204 |
(Note: Premium is calculated for a term plan, female, non-tobacco user and Sum Assured of 1 Crore, with coverage till 60 years.)
I’m too Young to Start Saving
The earlier you start, the easier it is to accumulate a handsome corpus and fulfill your financial goals. You can take benefit of power of compounding with long-term investments.
For example, if you invest Rs. 5,000 a month starting today, for 30 years, your corpus can grow to Rs. 5,872,602 (@8% return) and can expect returns at Rs. 2,799,760 (@4% return). On the other hand, if you delay investing by just 10 years, you will have to invest Rs. 9,900 (almost double amount) a month for 20 years to reach the same corpus. The 10-year delay in investment will cost you an additional investment of Rs. 5,76,000. So, start investing early!
I don’t need Savings
The value of money is decreasing with time. Inflation is the factor that erodes the worth of money. It is advisable to start investing as early as possible to grow your money.
Now let’s assess the benefits of start investing at young age.
If you start investing at the age of 25, this is the impact it can have on your finances.
| Age when you begin investing | Investment per month | ROI (annually) | Amount at 60 years |
|---|---|---|---|
| 25 years | 5,000 | 8% | 1.1 Crore |
| 30 years | 5,000 | 8% | 73.40 lakh |
| 35 years | 5,000 | 8% | 47.37 lakh |
Save money from your earnings, invest it to secure your and your family’s future. Don’t ever keep your savings idle in your account; just watch it grow in investments.
I can’t Manage Regular Expenses with Investment/Insurance
When it comes to investing, you need to assess your existing and future financial needs such as mortgage, child’s education/marriage expenses and post-retirement planning, and check with a financial planner how your investments will help you fulfill these obligations. Don’t forget to consider the inflation factor when opting for any investment. To fulfill your goals, you also need to start investing in term insurance, child cover, health and ULIP plan.
When seeking insurance, you should pick an adequate insurance cover, so your family will have sufficient funds to meet their short and long-term expenses.
- You can pick a Term Insurance to keep your family secure against life’s uncertainties.
- Get a Health Cover for your family to ensure all members get access to quality health care.
- Invest in child plans to secure their future, in your absence.
- Invest in ULIPs or Retirement plans to accumulate a corpus.
At an age when you don’t have too many financial responsibilities, it is easier to find a balance between regular expenses and investment towards your future. All you need is to make sure that the investments you are making are contributing significantly to meet your goals.