Tushar, now 30+ years old, shared 7 personal finance suggestions for a 20 year old someone who is just starting his earning life.
1/ Start early, start small
I did the first SIP of my life (of Rs. 500 per month) at the age of 22. That was in 2007, after I had joined my first job.
It was thrilling to move from a pocket money of few hundreds to a salary of couple of thousands. I lived the first six months of my after job life as if there is no tomorrow. Result, I was often broke and borrowing money from friends and family.
Luckily, I had a sister to coach me on financial wisdom and how important it is to follow the equation of ‘income – investment = expense’.
It took lot of courage and will power to inculcate the habit of investing, but I ensured I keep on investing and stepping up my SIPs, as and when my income raised.
In fact, I increased the SIP amounts during the market downturn of 2008. That was probably one of my smartest financial decision as mutual funds were available at very low NAVs. In year 2012, I used the same mutual fund corpus to finance my new car.
Get into the habit of investing as soon as you can. You don’t even realize when these tiny drops accumulate to become heavy clouds.
2/ Keep it simple
In one of his letters to the shareholders of Berkshire Hathway, Warren Buffett makes a hilarious yet extremely relevant observation:
“It’s interesting that industry has invented new ways to lose money when the old ways were working just fine”
Financial industry is definitely one industry that suffers from this syndrome.
There is so much noise in financial industry today; companies are coming out daily with new investment plans which are not just complex but make no investment sense.
I suggest you put your money in financial products that are simple and easy to understand, like term insurance, mutual funds, PPF, RDs, FDs, direct equities etc.
Until and unless you have advanced knowledge, never try your hand at complex financial products (like ULIPs, derivatives,FnOs etc.). It’s not worthwhile to trade even a night’s sleep for the chance of extra profit (this quote is again from Warren Buffett).
3/ Cover up your risks
If you are working in a corporate, you might be enjoying the benefits of a life and a health insurance.
Unfortunately, job security is a myth in today’s time and you never know when you will be stripped of the benefits of insurance.
So cover up the risk as soon as possible.
I understood this risk while I was switching jobs and was towards the later part of serving my notice period at McKinsey & Company. That was when I met with a road accident and injured myself badly.
While the company insurance took care of my immediate hospital expenses, I was out of job soon and had to bear all the medical expenses out of my savings.
Unless you already have a corpus of couple of crores, buy yourself a life and health insurance to cover the emergencies of life. One day, your loved ones would be proud of your decision.
4/ Invest in yourself
We all are compulsorily taught Mathematics and Science at school. Unfortunately we are not taught accounting and finance by default.
Essentially, our education system teaches us to make money but never tells us how to spend that money.
Don’t let your education interfere with your learning.
Take control of your financial life and invest in learning. Read books, teach yourself personal finance, get knowledge on savings, investments, mutual funds, equities etc. Your options are endless.
In fact, you can subscribe to my blog where I share lots of financial wisdom to help you live a financially smart life.
Remember, a fool and his money are soon parted. Don’t be that fool, invest in yourself so that you can grow and preserve your money.
5/ Keep evolving
Evolution is very important in your financial journey. The knowledge you gain today may become obsolete the next day. Be flexible to move ahead and embrace the change.
As an example, I have been investing in Regular Plans of Mutual funds for past 10 years now.
I got to know about the benefits of investing in Direct Mutual Funds and it took me just 10 days to switch from my existing mutual fund platform to Kuvera.
Expand your horizon and embrace the change. The financial industry is evolving at a fast pace and luckily, there are few good things that are happening. An option to invest in Direct Mutual Funds is one of these. So keep looking out for such positive changes.
6/ Learn to harvest, not just farm
When it comes to riskier investments (like mutual funds and direct equity), understand the importance of an exit.
That exit can be time bound (e.g. investing in a direct mutual fund via a SIP for a goal that is 20 years away) or can be return bound (e.g. investing in a stock with a target of increasing your investment by 50%).
Whatever be your target, learn to make an exit when the target is achieved. If you happen to stay invested even after the achievement of your target, there can be a chance that the situation may turn around wiping all your gains.
This has happened to me a couple of times in the past. I kept on holding a stock with the hope that the price will rise even further, only to see that particular stock tumble.
Control your greed when investing in a riskier asset class and make an exit when your target is achieved. Never ever try to time the market.
7/ Consume consciously
Use money as a means to achieve happiness.
That doesn’t mean you have to live a pauper’s lifestyle. At the same time, understand that it serves no purpose to splurge either.
Identify what gives purpose to your life. Spend your money there.
If I talk about myself, I have an average entry level phone but a vast collection of books and online courses.
I have a limited wardrobe but unlimited adventure experiences (I have done sky diving, bungee jumping, scuba diving, para sailing, para gliding, rafting etc.).
Consume to grow your personality, not your ego.
