WHEN we are a college fresher or in first job, saving and investment are the last things in our mind. Our priority is the latest gadget, movies or a dream car. This is natural among the youth. With so much media exposure, you get tempted to buy these items.
I would advise youth to follow five personal finance steps:
1) BUDGETING
It’s easy to find ourselves wondering where our money went. Putting a budget in writing can show how we are actually spending our money and what we can do to help control where it goes. We should remember to add entertainment and shopping expenses into monthly budget and not forget to include savings. We should treat it with the same importance we would treat utility bills. In fact, the earlier we start saving, the earlier that money can start working for us.
2) PLASTIC WOES
Easy availability of credit cards has provided a major boost to spending. We should use credit cards in a proper way like for emergency payments or life insurance premium payments. If we are not careful and use “minimum payment option”, it could mean getting entangled in a debt trap. Interest rates are as high as 42% in most of the credit cards now. We should stick to the rule: “If we can’t pay cash, then we can’t buy it.” We should not use credit card unless absolutely needed.
3) START EARLY
As investor when we are young, we have time and money on our side. Most of the people are unaware about power of compounding. According to Albert Einstein: “Compounding is mankind’s greatest invention because it allows for the reliable, systematic accumulation of wealth.” The sooner we start, makes the difference. We should start SIP (systematic investment plans) at an early age to benefit from the power of compounding.
The term ‘systematic investing’, applies to the process of investing regularly ie. at fixed intervals, say, monthly or quarterly. Even we may start at as little as Rs 500 per month.
4) SET OBJECTIVE
This should be starting point of any investment plan. We should split the objective in short term, medium term and long term. Some examples are like buying an electronic gadget (short-term), planning for higher studies (medium term) and planning for house (long-term). An investment objective is a simply a wish which we want to fulfil. After setting the investment objective, calculate the amount needed to achieve the financial goals. We should be able to earn decent return on the investment after assessing risk profile. The more we earn, makes a difference.
5) PAY OFF DEBT
We should always retire the high cost debt first. We should never accumulate the debt on credit cards. Nowadays we have access to educational loans which are cheaper then credit cards. We should consolidate the debt when possible to take advantage of lower rates. It is better to take loans from parents and friends then to accumulate high cost debt.
I would advise youth to follow five personal finance steps:
1) BUDGETING
It’s easy to find ourselves wondering where our money went. Putting a budget in writing can show how we are actually spending our money and what we can do to help control where it goes. We should remember to add entertainment and shopping expenses into monthly budget and not forget to include savings. We should treat it with the same importance we would treat utility bills. In fact, the earlier we start saving, the earlier that money can start working for us.
2) PLASTIC WOES
Easy availability of credit cards has provided a major boost to spending. We should use credit cards in a proper way like for emergency payments or life insurance premium payments. If we are not careful and use “minimum payment option”, it could mean getting entangled in a debt trap. Interest rates are as high as 42% in most of the credit cards now. We should stick to the rule: “If we can’t pay cash, then we can’t buy it.” We should not use credit card unless absolutely needed.
3) START EARLY
As investor when we are young, we have time and money on our side. Most of the people are unaware about power of compounding. According to Albert Einstein: “Compounding is mankind’s greatest invention because it allows for the reliable, systematic accumulation of wealth.” The sooner we start, makes the difference. We should start SIP (systematic investment plans) at an early age to benefit from the power of compounding.
The term ‘systematic investing’, applies to the process of investing regularly ie. at fixed intervals, say, monthly or quarterly. Even we may start at as little as Rs 500 per month.
4) SET OBJECTIVE
This should be starting point of any investment plan. We should split the objective in short term, medium term and long term. Some examples are like buying an electronic gadget (short-term), planning for higher studies (medium term) and planning for house (long-term). An investment objective is a simply a wish which we want to fulfil. After setting the investment objective, calculate the amount needed to achieve the financial goals. We should be able to earn decent return on the investment after assessing risk profile. The more we earn, makes a difference.
5) PAY OFF DEBT
We should always retire the high cost debt first. We should never accumulate the debt on credit cards. Nowadays we have access to educational loans which are cheaper then credit cards. We should consolidate the debt when possible to take advantage of lower rates. It is better to take loans from parents and friends then to accumulate high cost debt.
