Onboarding new Joiners to Personal Finance Journey!
The feeling of getting first job is empowering. No need to ask money to parents or guardian, almost everything which was earlier a dream is now in reach from branded clothes to new bike or fancy bag to eating in good restaurants and so on.
For most of us, this powerful wave of financial freedom is further turbo charged by the availability of easy credit from Credit cards to Buy Now Pay Later to Personal Loan.
As everything else, this wave does not lasts forever and when it settles in couple of years, stage of life is changed and there are responsibilities which are knocking on the door ranging from Getting into relationship, Buying a house, Taking care of dependents etc. But most of us find ourselves unprepared for the responsibilities because we thought – its too early to worry, whole life is left to figure things out and when will I enjoy the life if not now.
No savings, sometime lot of loan taken for small things, bad financial habits + new responsibilities throw an individual in that financial chaos which lasts from anywhere between a decade to a lifetime to figure out and fix it.
Imagine, getting into a marriage with no savings and ton of credit card debt and expectation of new life by the partner or sudden requirement to foot a big medical bill of ageing parents with no savings in hand or requirement to buy a house when you already have big credit card bills to deal with.
Most of these situations occur due to lack of basic understanding of personal finance and rights habits on dealing with money.
Lets look at key things which really matter, cutting across the noise of stock market to Mutual fund IRR to Bitcoin and so on –
1. Time is of essence
You cannot get the lost time!
Same applies in finance you cannot get the returns lost in earlier years, no matter how hard you try.
Let me put this in perspective by a simple example.
If you started investing 15K monthly in 2010, with expectation of 12% per year.
Vs if you started investing 15K monthly in 2014 with expectation of 12% per year.
What do you think will be the value in 2021 ?
You will have 49 Lacs in saving, Vs 25 lacs in savings. The difference is of 24 lacs, even though you had just invested 7 lacs more i.e. from 2010 to 2014.
So, start early and stay consistent!
2. It is the habit which matter not the amount of money
You may have a salary of 20K, 50K, 100K or 500K, but if you spend all of it then you will have zero saving at the end of the month/ year/ years.
It does not matters how much you make, what matter is what you do with the money which you make.
Excuses which we give to our self, like – that I do not make enough to save or I will start investing when I get another hike or my salary is just enough to cover my expenses, will always be there and can be applied at any size of the salary.
So, make it a habit of investing some portion of the salary which you get in first few days of the month and learn to live with the left over money in the account.
Think about it for a moment, when you were student you were able to easily go by a month with fraction of the money vs which you need now. Why do you need that much more money now ?
Start with as small as 5K if you make 20K or bigger amount if make more, but be consistent and keep on increasing the amount as your salary increase.
Develop habit of investing to Invest.
3. Compounding the 8th wonder of the world
We touched upon it in point 1 i.e. the longer you stay invested the more magic will happen to your savings.
Because compounding is that magic which happens when you give time and in-return it turbo charges your savings.
Read more about it – https://financegrail.com/compounding-8th-wonder-of-the-world/
4. Keep it simple
I do not know where to start from!
Is it too risky!
Numbers make my head spin!
Sounds familiar ?
You do not need to be Finance Guru or Rocket scientist to figure this out. As in other area of life, simple solutions work best.
Just start investing in basic instruments like –
Fixed deposits, and enjoy compounding
Index funds, just invest and forget – https://financegrail.com/what-are-index-funds/
REITS and InvITs – https://financegrail.com/what-are-reit-and-invit/
Buy some Gold – https://financegrail.com/gold-investment/
Once you have developed the habit of investing and your portfolio is of some decent size, start learning a bit more about risks involved, how your asset allocation should looks like,
