The initial years as one starts their first job are just blissful. There are no responsibilities and a steady inflow of income, which is why one is open to feed the urge of spending that money as they please. At the beginning, with no particular goals in mind and no liabilities, it becomes easy to spend the entire salary. However, wealth creation takes time just like all other good things, and that’s why it is advisable that one starts early. Investing small amounts from the beginning leads to a huge corpus later which is better than starting late and creating it in a short span of time. Here is what we advise millennials to do with their salaries:
- Set Goals:As one begins their job, they might not have given too much thought to their long terms goals, but it is important to focus on them. Categorize your financial goals into short, medium and long-term goals. Short-term goals are objectives that are met within two years like buying a phone or car or saving for higher education. Medium-term goals are met between two to five years like saving for your own house. Long-term goals require more than five years such as saving for the future family and retirement.
- Set a Savings Budget:As mentioned above, it is easy to forget about savings when one has just started earning. At the same time, it is the also the best period as it’s easiest to save because there are no responsibilities or liabilities. The best way to save money is to have is saving budget in one place. Set aside a portion of your monthly income. Pay yourself first in the form of savings and spend the rest of the money guilt-free. Avoid acting on advice from friends, or you might land up with ad-hoc investments that may not be best suited for you. Start saving small portions at first and then increase the savings as your salary increases. This way you will have a sizeable corpus to meet your long-term goals.
- Start Saving Early:Disciplined investments play a vital role in wealth creation. When you start saving early in life, you get a head start to meet your financial goals and then retire with a large corpus for a comfortable future. Compounding works the best and rewards the people who have started early.
The best way to explain this would be with an example; suppose you start at the age of 25 and put Rs. 10,000 per month in an investment which yields 12 percent per annum, you will have built a corpus of Rs.6.43 cr by the age of 60. However, if you invest the same amount at the age of 26, you will have only Rs 5.69 cr in the same time frame. You lose almost Rs. 73.50 lakhs in just a difference of a year.
- Invest in Equity:Starting to invest early in life gives you the opportunity to think about long term and get a good exposure to equity. Most Indians think that it’s risky to invest in equity or stocks (Shares) which is why you may notice less participation in this asset class and whatever limited exposureto equity that people do have is based on tips from family or friends, portals, stockbrokers or television. What they don’t realise is that equity as an asset class has the potential to provide highest post-tax returns in an emerging economy like India. Investing in equity can be highly beneficial though the proportion of equity can vary in your portfolio based on your overall objectives, returns needed for goals, time horizon, and investments in other assets classes.
- Get reliable advice:A Professional’s advice is always a better option than taking a DIY (Do it yourself) approach based on advice from friends and family . Countless people invest on their own and end up paying a heavy price for it. A financial planner would draw up a financial roadmap for your goals after analyzing your income and risk profile. He/she would also review it periodically to ensure that you are on track to achieve all your goals.
Following these simple principles can take a lot of financial stress off your back and help you achieve your goals.
Author, Amar Pandit, CFA, is the Founder of Happyness Factory.in