Tips to Start investing in 20sWake up Sid! This film showed the state of mind of a youngster who is in dilemma of how to go about his career and life. Imagine a college pass-out who has his savings account credited by his own salary, which account was till now being filled with money by his father. The dream of his parents is fulfilled as he is now on his own. Managing money is something that most Indian parents are not very comfortable teaching. Usually one hears, be satisfied with what you get. This is true but important is to make suitable arrangements for money with money. Let us understand this concept in detail.
Welcome to the World
In the English comedy serial "Friends", when Rachel decided to get a job and start earning, Monica says - "Welcome to the real world! It sucks! You're going to love it". This is applicable for the fresh pass-outs who have all the zeal and drive to prove themselves and create an identity in the business world. Getting a job and earning "my own money" seems to be the only goal in life. There is a long list of things to be done and bought with the first salary.
Saving and investing is done not as a voluntary decision but money is committed as something that is required to save tax. No one remembers the broad learnings of the engineering college but has relevant sections of Income Tax Act mugged up.
Market going to 21,000 levels and falling below 10,000 gives them a feeling that they are not destined to do investments. Earning, saving and investment are terms which need to be understood when one starts understanding the value of money but many of us are reluctant to do this. In fact we keep on deferring the discussions which go beyond the "packages" in the industry that are prevalent.
But it's not that those in their early years of earning career are failing in learning the art of money management. Even those who have not crossed their bachelorhood are often finding it difficult to bring balance in their wallet.
Habits
For the new-born money earners, shopping for clothing and accessories and parties become so often that these require a calendar.
Those who have been in the working life for quite some time keep a track of the latest gadget or trek trip. Who can do without a new car or an i-phone? Shopping at malls on weekends and boozing at pubs during weekdays is a regular life now. After all one should enjoy life! The statement is true but with a different connotation. Happiness or enjoyment can be said to be the one of the many things that money can't buy, not anyone can give to another person. These things are hidden inside us and we just need to recognize their source and importance. Same way, money is in our pockets, irrespective of amounts. What we should learn is what it is meant for and how to put it to use so that it can be used later on.
Strange part between the guy who started earning and this guy is that the former is trying to get the habit of spending and latter is already in habit of spending.
Both have own money at their disposal, have full freedom to spend it, can buy whatever is affordable which need not be important. They are not constrained by the household grocery bills or loan installments.
Investing
Like we eat, we work, we sleep, we also need to invest. But what we first need to understand is what is investing, why do it, how much, and way forward. These issues are not that simple but a bit of financial knowledge can make things much simpler. So, let's start!
An example will help us understand the whole process.
Santosh, working as an accounts executive has a net monthly income of Rs. 45,000. What net monthly income means is that he gets Rs 45,000 in his bank account credited after all deductions like Provident Fund, taxes, etc.
He has monthly personal expenses of Rs. 10,000 including conveyance and daily expenses. He devotes Rs. 10,000 to his home. Finally he has Rs. 25,000 each month at his disposal. This is where he has to take decisions about timing and use of money. What this means is that he needs to take a call - Whether I will spend all the money now or save for later; Whether I will spend all the money on shopping, eating, donate or invest it in some useful asset.
Another point to be understood is that saving is one part and putting it in useful financial instruments is another. Buying all equities could be very risky and putting all money in FDs can be a waste for our young investor. Better idea is to match your investing with your time horizon. If you have lot of time, invest more in equities, else have a balanced portfolio. What exact portfolio should be is very relative to each person but having more exposure to direct equity and/or equity mutual funds is what is suggested to young people as they have long investing time and need an overall greater return.
So the first task after reading this article should be to make a portfolio after taking advice from a financial consultant. But be disciplined in investing and investing will discipline your money.
