Financial Planning- A Need for Today’s Youngsters

“Money comes and goes; lifestyle comes – but never goes away.”

Youngsters nowadays start earning early, but have little or no idea of investing, at least in the Indian context. The little that they do know is through advice they received from elders of financial planning. There are many questions that revolve around how to reduce the amount of taxes paid or how to diversify investment, low risk low gain vs. high risk high gain products.

According to experts, there is no single best way of investing money in India. You can choose from the numerous alternatives that are available and make it the best for you. So, the one that meets your financial objectives shall automatically become the best option for you. A youngster who has started his career, having no major obligations and incurring only nominal expenses can afford to save a fairly big amount out of his earnings. It is in fact a good time to start focusing on your investment planning. If you are in your early 20s, this is the perfect time to plan your funds in the right manner to get good returns.

Below you can find an idea of how youngsters can plan their investments so that they bear fruits for their future:

Power of Compounding

The most important phenomema that youngsters in India need to know about investing is the power of compounding. The earlier you start saving, the more time your savings have to grow.

Tax-saver mutual funds

Under 80/c, you can invest upto a certain amount (mostly 1 lakh) in tax-saving mutual funds. They have a lock-in period of three years, which is a good horizon to be invested.

Insurance as an investment-A strict NO

This was very common during our parents’ generation and is still practiced and preached to our generation. There are many alternatives to MIPs that have a lower cost ratio. Buy term insurance to cover your family, and that’s it.

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No quick way to make money

There are no short-cuts to making it big through investing. Don’t trade based on tips from people who know how the market works. Don’t expect equity investments to make huge returns all the time. Don’t dread if your mutual fund’s NAV drops 5% in one month. Equity markets have a long term horizon and if you stay invested, you will reap the rewards. If you’re saving to buy a car within the next six months, don’t invest that money in the stock market to make a quick buck.

Keep an emergency fund

This is a fund for the rainy day; in case of medical emergencies, or in case you get fired, etc. This depends on your personal situation – Are you living with your parents? How long will you need to find another job?

Diversification

Diversify your long term portfolio to a good extent. A good thumb rule is to have (100 – your age)% of your portfolio in stocks and the rest in bonds. There are several debt funds which you can invest in to make your portfolio safer. FDs and post office investments pay a good rate, but they are taxable.

Meanwhile, you may learn about the critical concepts of financial planning and investing along with acquainting yourself with the mistakes that you need to avoid as a young investor. You can go through many of the articles written on the mistakes to be avoided by youngsters. These will give you a perfect idea of what can you expect by the things mentioned for planning.

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