And it is time to run back with another installment, isn’t it? Cheers to another way to know how you can achieve your financial goals when you are young i.e., in your 20s and early 30s. Growing up to these ages is the most crucial time of your life when you must invest some time in getting educated about investing, its benefits, and compounding interest. And believe it or not, this phase is the perfect time for you to acquire the requisite knowledge on investing and planning your finances well.
Invest early and invest wisely is the key to achieve your short-term as well as long-term financial goals. You can also learn more about managing money and investments by reading books, investment classics, considering advice from investment professionals, or even attending workshops conducted by financial institutions.
Before it is too late, it is vital to understand that there is no better time like your 20s-30s to put away your money aside for some growth towards achieving your financial goals for the future. And, developing a good habit of saving money while you are working and young is the best way to save much for the future. This way, it will also be possible to stay away from potential debts, if any, learn how to budget your finances and keep aside some money for the errands that are important to you, basis priority.
One of the crucial things to do during your 20s-30s is to consider saving for retirement. The compounding of earnings is very high when you start saving towards retirement young with comparatively fewer efforts, as long as you continue to invest regularly. For example, a 25-year old who invests 10,000 per month in a SIP for 20 years will earn more by the age of 65 than a 30-year-old who invests the same amount. The estimated loss on corpus will be to the tune of 40 lakh rupees, all due to a delay of a mere five years.
Between this age group, individuals are encouraged to have a financial assessment of their finances, accounts, etc. Most of you may have already conducted financial analysis; however, if not yet, it is time to start now. A reassessment of your finances is a must to be done periodically to determine whether you need to make some changes to your financial plans or habits. This analysis is essential at every step you make towards identifying areas in which you need to make specific improvements to plan and save your finances better. If you do not wish to do it by yourself, consider getting a financial professional to help you with this.
- If you are between the age group of 25-34 years old, planning for retirement savings and other financial futures should be one of your top priorities.
- You need not wait until your late 30s or 40s to plan and save for retirement. If you start now, you have 3+ decades to invest and save.
- It is crucial that you periodically assess your finances to ensure that you do not have any pending debts or loans. Try to save tax wherever possible to save more.
Enclosed are some advice on how you can plan your finances well.
Create a budget that suits your needs
While planning your finances in the mid-20s and 30s is a must because it will keep you on track about meeting your financial goals – short term as well as long-term. The best way to divide your finances and allocate funds equally is to follow Elizabeth Warren’s budget rule 50/30/20. So, when it comes to saving, this is how your budget should look like:
- Keep aside 50% of your income towards utilities that include bills of gas, water, electricity, and groceries too.
- Keep about 30% of your income aside for long-term payments that involve your car, travels, or any new purchases, even home or children.
- Save up 20%, which should be directed towards clearing your debts such as loans, retirement, credit card payments, and even investments.
If you save enough, you can also use part of your savings to build an emergency fund. Make sure; you follow this so that you can e a decent amount in the span of three to six months.
Identify your goals – short, medium, and long-term.
Another best way to plan your finances is to identify your goals and prioritize them. Your short-term goals could be anywhere between three to five years, which may include a wedding, honeymoon, furniture, etc. Medium-term goals can relate to owning your own house, financing for educations, etc. Long-term goals include planning for retirement and your travels. Once you have listed down the goals, estimate the money you will need to achieve those and keep them aside. This way, you will know how much to save every month from reaching that goal with your timeline.
Pay off your debts
If you are weighed down by high-interest debt in your mid-20s and 30s, it is the perfect time to clear that to avoid unwanted spendings. As you grow older and take more obligations, you may miss out on savings the amount you should be. For many in their mid-20s, loans on housing and other assets like cars come into play. You can consider making a partial or full redemption to shorten the loan duration, which will reduce your overall payment. It is advised to stay debt-free to build a good wealth for your future. Another way to plan and save on your finances include, avoiding the use of credit card, which may have higher interest rates.
Purchase a house in the right way
If you have waited for a long time to invest in the house of your dreams, ensure you are doing it right. Plan and save enough to make a good-sized down payment. The home you decide to buy must allow you to avoid being house poor and leave you with some finances for other things. Once you have owned your house for a while, taking a second mortgage on your home can be another way to get more cash flow if you want to remodel or make some additions to your house.
Invest in growing your finances and meeting the goals
To grow your short, medium, and long-term goals, it may be wise to invest in money market funds or stock markets. It is an ideal investment plan for short-term funds unless you have a high-risk tolerance. It may not be easy for you to be a smart investor, but you can take the help of some investing books or a professional financial expert to make some wise investments that can get your some returns/profits.
Aahna Gandhi is an enthusiast traveller, writer and a PR Professional. She likes sharing memorable moments from her travels and inspire others to live a life full of wonder. Known for her content, she has worked for travel, technology, lifestyle, health sectors as well as finance.
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