Traditional investors and/or traders are already in the habit of saving first and then spending. However, for an under-30 professional the taste of their first paycheque tempts them to spend first rather than saving. Why stand in line at the bank to deposit your money into a savings account? Why not use that extra cash to gift yourself that latest iPhone?
So, how does an under-30 person invest and trade wisely?
Here’s a simple two-step program that can help turn around your finances:
Step 1: Changing your habits
Start early
“The best time to plant a tree was yesterday. The second best time is today.” This thought holds true when applied to investing as well.
When a parent teaches her/his child to save five rupee coins and collect them in a piggy bank, one is hoping to build a life-long habit. Similarly, investing your money in such a way that it yields returns during your 20s will give you an advantage of having more working years prior to retirement.
Two major factors determine your investing strategy—the time you have in hand to invest and how much risk you are willing and able to take.
Planning for the long term
You might have had heated discussions with parents, relatives and friends about your career choices. What do you want to get a degree in? How much “scope” do you have in your chosen field? If you have an answer to all these questions then you are actually planning for your future.
Why not apply the same logic when it comes to your finances?
When you know the end goal, planning for the long term becomes easier. Whether it is to create a secure fund source for your retirement, education for kids or planning for emergency expenses—once you know where you want to go, the journey becomes easier. Understanding the kinds of risks you are willing and able to take is integral to your future financial planning.
Starting out with a small set of goals is possible in your 20s. In the struggle to make ends meet on a daily basis planning helps in not losing sight of your dreams.
Step 2: Take advantage of your age and optimise your investment decisions
Using age as an advantage
An under-30 professional is more likely to have less responsibilities as compared to a person in their 40s or 50s. Age works in favour of the 30-year-old who can take risks, experiment and learn about various investment options. There is a direct risk-to-reward ratio—more the risk, more the rewards. A person’s appetite for risk reduces with increase in age and responsibilities. For example, if you’re in your late-40s and have three dependents, the kinds of risks you will take while investing your paycheque are going to be different from when you’re in your 30s with no dependents.
Investing your money regularly helps bring a certain level of discipline to your finances. Right now your expenses might just be limited to yourself. However, in your 40s, 50s, you might have to provide for your parents and kids. At that time, the discipline that you built up in your 30s will come to the rescue.
Investment Options
1. Stock Markets:
Investments in the capital markets provide a much higher rate of return when compared to other traditional asset classes such as real estate, gold, fixed deposits, etcetera. Over a 10 year period, the SENSEX has grown XX percent whereas the return on all other asset classes in total has seen a growth of XX percent.
Tracking the stock market and keeping tabs on the rise and fall of the stocks that you own might get tedious for someone under-30 who is busy building a career. That’s when being tech-savvy pays off. You can choose to invest in the stock markets using online stock brokers like Upstox which enables you to buy and sell through its mobile and web-based platform. This is where a 20-year-old has an advantage versus the traditional investors—the 20-year-old can easily adapt to the changing landscape of the digital economy.
2. Mutual Funds:
Until the time that you build up your knowledge about individual stocks, purchasing mutual funds is another option. Investing in mutual funds helps you enter the investing game at a lower cost. You can buy and sell stocks in a larger quantity at a lower cost. Besides, experts in investing and trading are involved in creating a mutual fund for you. Finding a trustworthy mutual fund to invest is key. Mutual Funds usually have a diversified portfolio created for you—so returns are guaranteed. It is a valid option but you have to remember that you are trusting someone other than yourself to make financial decisions for you azithromycin 250 mg dose pack.
3. SIPs—Systematic Investment Plans:
Saving regularly is a habit that takes time to develop. A systematic investment plan is one of the simplest ways to train yourself to invest first and spend later. Just like you would send a particular pre-decided amount to your savings account, with a SIP you can invest a pre-determined amount of money at regular intervals. Usually the frequency of investing in SIP is weekly, monthly or quarterly. These are groups of mutual funds that you purchase with the amount that you send regularly.
These are just three out of many investment options available to you! Browse the market and study your own finances to find out the best fit for you. Choose the option that enables you to achieve the financial goals and dreams that you have always wanted to fulfil.
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