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Many youngsters take financial discipline as putting restriction on their freedom. That's a myth. You can very well enjoy as well as save and grow your money at the same time. Salil Dhawan shows you how
Illustration: Dominic Xavier/Rediff.com
Congratulations, in case you are one among those who have recently got their first paycheck.
Waiting for that all elusive message (Your salary has been credited…) beep on the day you expect your first salary to be credited is always one the most difficult things to do. It is a great sense of achievement too for you and your family who stood by you through the thick and thin of your journey.
Once the salary is credited to your account and you get over those emotions which each of us possibly could have gone through in the past or many of us will go through in future, there are few significant things you must remember to lay a strong financial foundation.
It has more to do with disciplined saving and subsequent investing rather than have a blanket ban on the expenditure.
Many youngsters take financial discipline as putting restriction on their freedom. That's a myth. You can very well enjoy as well as save and grow your money at the same time.
There are few proven facts which you must remember while saving, investing and spending in the early years and as to why a financial discipline right from your first job will pay you by leaps and bounds in the years to come...
Click on each point below to read more
Maximise the benefit of the power of compounding by start investing early. We must understand that your investments are capable to generate maximum returns if you are invested for the long-term.
If you start saving and investing wisely right from your first paycheck, there is a greater possibility of you achieving your goals on time or maybe well ahead of time.
The difference between actual corpus can be quite phenomenal if you start early against if you start a decade after.
For instance, if you start investing Rs 10,000 for your retirement right from the age of 25 you will amass Rs 14.9 crore as your end corpus if you invest for 35 years expecting annual returns of 15 per cent.
If you start 10 years later and invest for 25 years expecting annual returns of 15 per cent, the end corpus will shrink remarkably to only 3.3 crore.
This is one of the most significant eye-opener as to why you should start investing right from your first paycheck.
In the early stages of your life when you have just started earning, you can save judiciously and hence are in a position to save and hence invest more.
Most of us are pretty much flexible at this life stage without any liabilities on our hand. So it is prudent to take maximum benefits of this life stage and streamline your finances.
As soon as you start earning, there will be some or the other relative who will pop up with insurance-cum-investment policies which will be hazardous to your financial health. This is one such experience which can be detrimental to your financial well-being.
Say 'No' if you don't need it.
Invest your money only in productive assets and not in some product where you will look for exit options few years down the line.
These should be viewed as the ones to grow wealth, not just to save tax. Plan your tax saving investments as soon as you start earning.
Tax savings investments should not be viewed as an instrument only to save tax but to grow your wealth as well.
Don't buy a specific policy just to save tax. You should have a solid reasoning behind all your investments including ones under Section 80C.
Look for simpler products which are easy to understand such as Public Provident Fund (for debt allocation) and Equity Linked Savings Scheme (ELSS).
Keep your insurance and investment portfolio separate.
Debit card should be the way to go and avoid the use of credit card if you can. Avoid impulsive buying.
There is a breed of youngsters who fall prey to overuse of credit cards and accumulate high-interest loans in the process besides damaging their credit history by defaulting on credit card payment.
Buy things which you want rather than buying something just because someone else has bought it.
Equities over the long term can generate inflation-beating returns. Start your SIP in equity mutual funds as soon as you start earning. Avoid investing directly in stocks till you understand the market pulse and digest its volatility. Mutual funds should be the way to go.
Make sure you track your fund performance every 6-8 months and take a call accordingly.
Don't be perturbed by market fluctuations and keep investing regularly.
Increase your SIP amount as your salary increases so that end corpus is that much bigger.
Investing without any clear plan won't make much sense as you will be random investing randomly without any specific goals.
Map each of your investments to short, medium and long-term goals and invest accordingly.
Take inflation into account while deciding on the end corpus which will be required for a specific goal.
Your investment strategy will be a lot more focused if you have goals chalked out and are investing in accordance with them.
Youngsters do hesitate to invest in new age technology training courses due to high training and examination fees.
As an individual, we should invest in ramping up our knowledge by attending such courses time to time as it will brighten up our career prospects, help us to earn more and hence invest more for our goals.
In case your parents have investments in ULIPs, endowment plans, PPF, don't invest blindly in them.
Evaluate all possible investment options and take a call accordingly. Invest as per your risk profile but don’t shun a particular asset class altogether.
It is always prudent to have an emergency fund in place to account for any unforeseen circumstances.
Target should be not to dig into long-term goals allocation in case funds are required all of sudden.
Courtesy: investment-mantra.co.in