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“I made my first investment at age 11. I was wasting my life until
then” – Warren Buffet
When it comes to success, there is no better story than that of Warren Buffet,
the “Godfather of the Investment World”. Whether we talk about his unique take
on strategising businesses or his simplistic approach towards life, Buffet is
the personality to look up to for all young investors and working professionals.
Therefore, when he says that starting early is key to better financial planning
and wealth creation, we can take his word for this. In fact, various studies
show that the financial habits and skills that you develop at an early age,
especially in your 20s, do have a definitive effect on your finances for years
to come.
As a result, it is crucial to be proactive and flexible to develop an investment
acumen early on if you wish to take control of your finances. To help, here are
some essential
wealth building habits that you must start on your 20s.
1. Investing Early Yields Benefits in Spades
Let’s say you invest Rs. 5,000 per month starting at the age of 20 years and
continue doing so until you’re 60 years old. At a decent 8 percent rate of
interest on your investment during that time, you would have approximately Rs.
1.75 crores in that account alone.
In case, you decide to wait until you were 30 to get started, you would only
have up to Rs. 75 lakhs by the time you reach the 60-years-old mark. In terms of
numbers, those first ten years of investment you missed out on, would cost you
up to Rs. 1 crore in returns – even though you only skipped investing Rs.
6,00,000 and ten years of deposits!
This is the magic of compound interest, which helps maximise your savings by
compounding them on themselves. Thus, if you want to be financially secure in
the future, then you would have to start early to leverage the power of
compounding and put it to work.
2. Set Regular Financial Goals
Setting clear financial goals early on in your career can help you stick to your
budget, maximise your savings and build wealth. You can segregate your goals
into short-term, mid-term and long-term financial goals and then work towards
accomplishing them accordingly.
For example, goals such as going on a vacation or buying a MacBook Pro would
classify as short-term while purchasing a car could be considered as a mid-term
goal. Long-term goals usually require significant financial backing, therefore,
planning your child’s education or marriage would automatically fall under
long-term goals.
That said, setting up your goals and prioritising them would help you avoid any
last-minute hassles of creating funds and putting them to use.
3. Diversify Your Financial Portfolio
While investing early into equities can help anyone to create wealth in the long
run, such investments alone cannot fortify your plan for a financially secure
future. Instead, there are other aspects that you need to include in your
portfolio.
Just like you need to spread the butter evenly on the entire bread slice, rather
than just putting it on top of it, you must look to diversify your financial
portfolio rather than making it unidimensional.
Thus, you need to consider other forms of investments too, including life
insurance, health insurance and retirement plans. For example, instruments such
as online ulip plans from reputable insurers such as Future Generali not only
allow your savings to maximise through money-market returns but also secure your
finances with a life cover and yields tax benefits. Moreover, these
Online ULIP plans come with many beneficial features like switching
facility, top-up facility, multiple fund options and so on.
Overall, you may start small in the beginning, and later on, proceed to allocate
varying proportions of your savings into a variety of instruments.
4. Automate Your Investments
Regardless of where you are in terms of personal finance management, it is
crucial for you to automate your investments. Doing this would help make sure
that your investments can take care of themselves and you can focus on other
aspects of your portfolio.
Automating through
ECS (Electronic Clearance Service) will also allow you to save consistently,
without having to choose between delayed and instant gratification. For example,
investing in allows you to automate premium payments, whether you have chosen a
monthly or an annual payment mode.
Building Wealth is All About Maximising Your Savings!
The bottom line: if you can inculcate the habit of saving and
investing your money during your 20s, you will allow your finances ample time
and opportunity to grow. Moreover, you will be able to protect your investments
better and fulfil your life goals hassle-free. Remember, it is a lot easier to
build wealth when you prioritise saving and making investments, instead of an
afterthought.
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