Financial Planning in your 20s

Are you in your 20’s? Did you start making money? It’s high time you start to learn how to manage your money better?

Let’s get your money management business up and running in this article about financial planning in your 20s!

A journey to financial independence is not rocket science. Courage, determination, and open-mindedness are what start it all.

Breaking the belief that you have to earn big money to be wealthy is the first step in changing your financial reality.

Start with INR 500 a month, but do it right and you could easily make INR 10,000 a month.

The best time to buy an investment in your 20s is right now. You will realise before you even touch your 30s, that your early 20s investment act has already made you decently wealthy.

20s are a very important time to start building your financial portfolio.

If you think about the future, you’ll get the results you want. You just have to make a few key decisions.

For young people, financial planning in their 20s includes the management of their incomes so they don’t end up in a financially precarious situation, and not end up with too much debt.

Let me share few Actions, how you can start managing your personal finances effectively ;

Financial Planning in your 20s
Financial Planning in 20s

Action-1 : LEARN HOW TO CREATE YOUR BUDGET

It’s time to take a good look at what you earn and set a budget.

Making a budget is the first step to deciding what you want to spend and when.

A priority list is a good idea.

You should start with creating a budget to help you manage your money. After that, you should stick to it.

A budget can be as simple as a list of your incomes and expenses , or it can be as complex as a spreadsheet that tracks your Rupee.

The key is to make it work for you.

Once you have a budget in place, you need to know how much you make. What do you have? How much are you making? Are you spaneding more money than you want? If you want to increase your savings, you need to figure out what you can cut from your current spending. Cutting unnecessary expenses is one of the best ways to increase your Surplus, as we all have things we would rather not spend money on.

 If you wish you can download a budget sheet from here.

Learn to create budget
Learn to create budget

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Action-2 : SET FINANCIAL GOALS

Set financial goals to reach your lifelong dreams.

To be financially secure, set long-term, mid-term, and short-term financial goals. Setting financial goals for yourself will help you plan for the future. With some planning, you’ll be more likely to achieve your goals, such as becoming financially secure.

Some typical future financial needs for which your can set goals are:

  1. Your marriage ( if not yet married)
  2. Buying your First home
  3. Your Children Education
  4. Your Children Marriage
  5. Your Retirement

By setting goals ,You’ll also find out what to focus on first, and you’ll learn how to get on the right path.

You can also be sure that the results you get will be worth your investment.

How much you will need to save each month depends on how much you plan to save. 

Don’t set yourself up for failure by setting specific, actionable goals. Set yourself up for success instead. Setting a specific amount of time to work on each goal is important to achieve success.

To achieve your goals, you must assign specific amounts. Save “Rs. 10,000” instead of “a lot” or “enough,” which could mean that you want to accumulate Rs.10,000.

If you don’t have enough money, then you’ll have to save more or earn more. 

You have various online savings calculators you can use to calculate how much you need to save each month to reach your goal in your allotted timeframe.

To help you set your financial goals, please download excel sheet from here.

Set Financial Goals
Set Financial Goals

Action-3 : PAY YOURSELF FIRST

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Warren Buffett says ‘It’s not how much your earn but how much you keep’

When you get money coming in, don’t forget to give yourself first.

If you want to get rich, you’ve got to stop spending money and start saving it.

You can have your savings automatically transferred from your checking account to your savings account via automatic transfer.

This feature makes it easy for you to save money. Just make sure to keep a balance of money in checking to cover all your expenses.

Set a goal to save 10% to 20% of your income each month to put toward your long-term priorities.

Action-4 : START CONTRIBUTING TO YOUR RETIREMENT ACCOUNT

This is good advice for everyone who wants to save for retirement. You should start contributing to a PF/EPF/PPF/NPS or other retirement plan starting with your first job.

Your contributions will help you save taxes as well. Even better, many employers will match all or part of your contribution, which results in huge gains for you.

Starting early works well as most of your 20s , you will have less financial responsibilities such children’s school fees etc., which will help you to save over 50% from your income.  

Investing early lets you reap the benefits of compound interest.

For example, say you’re a 25-year-old who invests Rs. 2,000 a year for eight years and never invests an additional amount after the age of 33. You will earn more by the age of 65 than a 35-year-old who invests Rs. 2000 a year for 32 years, even though the 35-year-old invests four times as much.

If you’re self-employed, you should start by opening a PPF and NPS account for your retirement planning. 

I’ve found it helpful to set aside 10%-15% of my income to savings for retirement.

It doesn’t matter if you can contribute this much right away or not. Just start contributing now.

Start contributing towards your retirement
Start Contributing towards your retirement

​​Action-5 : LEARN HOW TO AVOID IMPULSE SHOPPING

Once you know how to find good deals, you’ll also need to become a smart shopper, and determine whether or not you actually need the item before you buy it.

But don’t forget that buying things you want doesn’t mean you should not spend money on what you need. A smart shopper very well understands difference between ‘Wants’ and ‘Needs’.

A budget is a tool for you to use to help manage your finances and to make sure that you’ve got the cash available to cover a purchase without dipping into savings.

A good idea is practice delayed gratification by waiting at least 24-48 hours before making a major purchase.

Having a clear list,of what you want to buy, in front of you can help you rein in your impulse buying, which can save you time and money.

If you use a grocery list, you’ll avoid the need to take a second trip to the store, which saves you time and money on gas and additional impulse purchases. Before each of your shopping trips, organize the products you’ll buy, and then watch your bank account add up!

Avoid Impulse Shopping
Avoid Impulse Buying

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Action-6: AVOID CREDIT CARD DEBT

Debt can ruin your financial life if you’re not careful, but there are a few things you can do to keep from.

The best thing you can do for your finances in the long term is to avoid credit card debt.

Make it a point to have the money in your account before you charge anything.

If your high-interest credit card debt is not being paid off on time, it’s draining away your finances.

Before you know it, you can max out one credit card and can open multiple new ones.

It is a vicious cycle that can ruin your Finances. It is an unbalanced cycle. The more you make, the more you spend, the more you make, the more…

That could take several years before you become debt free.

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Action-7 : CREATE AN EMERGENCY FUND

An emergency fund is an amount of money that you have set aside for emergencies. This is a safety net for when life throws you a curveball and you need to pay for unexpected expenses.

Having an emergency fund is a crucial part of any financial plan. It can be used for many purposes, such as unexpected medical expenses, car repairs, and more. The importance of an emergency fund cannot be overstated.

The biggest financial mistake people make is relying on credit cards to cover day-to-day expenses when they go over budget.

The emergency fund is a safety net for unexpected events. It should have enough money to cover 3-6 months’ worth of living expenses. That will cover you in the event of an emergency, such as losing your job or dealing with an unexpected loss in the family.

Action-8 : CONSIDER WORKING WITH A FINANCIAL PLANNER

I know what you’re thinking… “What?! A financial planner?? I am only in my 20’s! And, I don’t have nearly the assets required to hire a financial planner.”

Most people in their 20’s don’t have the assets to justify the fees traditional financial planners charge.  It’s kind a hen first or egg first situation. If you do not have assets today, a good financial planner can help you create so consider working with a fee only financial planner. In india you have SEBI Registered Fee Only Investment Advisors available with whom you can work on your finances and wealth creation. 

Just in case you need help with your financial plan, you can book a free no committment free call by clikcing here.

OR

Action-8 ; LEARN ABOUT INVESTING

20s is a great time to learn about investing. Learning how to invest right now can help you reduce risk and increase returns. Once you understand the basics of investing, you’ll be better able to build wealth over time.

Get the basics of how to invest in low-cost funds, as well as how you can use dividend stocks to your advantage.

You don’t have to be an investment expert to build wealth.

I have created an online DIY wealth coaching programme, learn more about the same by clicking here.

Action-9 : PROTECT YOUR WEALTH

Even if you have palnned for all predictable financial needs and goals, there would be certain unpredictable needs for which you need to protect your wealth.

When an emergency hits, it’s important to have a liquid emergency fund available to meet your immediate needs, but you can also move the rest of your savings to accounts that are less accessible.

Having all the insurances so that in any untoward eventuality, your already created and future wealth is not used. 

If you have financially dependent on you, you must buy a term insurance. Buy Medical insurance to provide for Hospitalisation expenses. If you are working in a hazzardous prone profession, you might consider having a Disability Insurance to provide for your expenses during any permanent or temporary disablity situation. If there is any ctitical illness history is there amongst your parents/family , you may consider buying a critical illness policy.

Protect Your wealth
Protect your wealth

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Action-10 : FOCUS ON NETWORKING AND CAREER GROWTH

Another important part of your financial picture is earning an adequate income. Paying attention to your performance and career advancement will help. It’s because of this that it’s so important to keep your resume up to date so that when you hear of a good job opportunity,  you can take it.

Building your network at work will help you be successful in your career. However, it’s equally important to continue to build your professional network even if you enjoy your job.

Having an established network will greatly improve your chances of landing a new job when you are ready, or maybe you’ll have an opportunity to build your network, which could help you in the future.

Financial Planning for People in Their 20s FAQ

Why is financial planning so important in my 20s?

Planning your finances is critical in your 20s. This is the time to build the foundation for the rest of your financial life. 

The best time to create a financial plan is now. If you don’t, you might end up spending your money without restraint, and you may fall into debt.

What is the most important part of financial planning?

The most important part of financial planning is budgeting.

How often should I update my budget?

You can update your budget whenever you come into more money, for example, if you get a raise at work. You can also rebudget if you reach a certain financial goal.

How to Invest in 20s So that I can be retire at 50?

When I talk to people in the 20s, most of them in fact, almost every one of them seemed to have two goals. A I want to retire by the age of 40-50, okay? And B I want to earn one career by my 30th birthday. In all honesty, both these goals are truly possible, and there are many who have done it. And the one thing all these achievers have had in common was that they had a financial plan on how to get there.

When it comes to getting started on investing, there is no better time than the present. And if you are in your 20s, then time becomes your biggest asset, which makes it a lot easier for you to achieve most of your financial goals. Now, deciding on how to invest money in your 20s can seem a bit formidable at first with many people giving different and very isolated opinions. So I have compiled some essential investing specific strategies that anyone and everyone in the 20s should apply.

Most people in the 20s approach investing by delaying it. What I mean is that they often come up with beliefs that they have a lot of time on their side and a delay of five or ten years will not make any difference to them in terms of achieving their financial goals. But in all honesty, it is this procrastination that makes all the difference between achieving all your financial goals with relative ease versus maybe achieving it with a lot of hardship.

Now there are two excellent ways to get started and we suggest you do both of them. Firstly, enroll in an EPF or the Employee Providence Fund scheme through your organization, which will immediately start feeding money into your retirement account.

And secondly, start a mutual fund SIP. The idea behind starting an SIP is for you to remove any resistance to investing so you’ll have your account set up. You would have invested some money which need not be a lot and it can be as small as Rs. 500. But the importance of that small investment is that you will get to see your money growing, which will then act as a greater incentive and motivator for you to invest. So come what may, don’t overthink and just start your investing journey.

What books do you recommend to improve my Financial Literacy?

 FINANCIAL PLANNING BOOKS FOR PEOPLE IN THEIR 20S

 * The Warren Buffett Way :  This book will teach you how to invest, take big risks, and learn how to make money on the stock market. The book teaches you how to take advantage of bonds and stocks using illustrations.
  * Rich Dad, Poor Dad : Reading this book will give you a better understanding of the faulty relationship many young adults have with money. It will help you start a successful financial journey by creating multiple streams of income.

* 10 Commandments for Financial Freedom : The book takes you on the liberating journey from financial slavery to financial freedom. It contains 10 commandments for wealth creation and wealth preservation which lead to financial freedom. Step-by-step the book helps you fully understand money and its fascinating, elusive behavior, including the best ways to earn, invest, protect, budget, save, spend and multiply your money. It uncovers the unique rules of money and highlights the common financial mistakes which may be stopping you from becoming rich. This book boldly challenges and often upturns conventional wisdom. It reveals things about money which you may never even have thought of before. Above all, it gives you the roadmap to be financially free forever.

*  Mad Money Journey: A Financial Adventure : Mad Money Journey: A Financial Adventure is a beautifully written book about how to secure a financially independent and secure life. The book imparts these valuable lessons in the form of a story. Mad Money Journey: A Financial Adventure was published by Jaico Publishing House in the year 2014 in paperback. It has 260 pages and is in English.

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