“I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over”
– Warren Buffet
Our thought process and behavior are reflections of the experiences we gain from our social interactions. While our family prepares us to face many hardships of life, our education system helps us in shaping our values and career. However, personal finance is one area which is mostly ignored during our upbringing and proves costly when we become adults. The wealth is never accumulated in quick and high gains, but with consistent, long and small steps.
We always explore personal finance options at later stages of life when we have lost out on the opportunity of “power of compounding”. People in twenties and thirties can overcome personal finance situations by using the four steps :
1. Feel proud to save because you will have money later when you need it most
Anything that makes you proud is also cool. Just like getting your dream job right after college is cool as it makes you proud of what you are. The first time you save you should be proud. It’s a start of a great habit which will come to your rescue and make you financially confident. Warm up to the idea of saving early as it makes you future proof.
2. Ask questions : what is good for your friend may not be good for you
Most mistakes in personal finance are committed in our twenties and early thirties because we do not ask questions and give in to the crowd behavior. You should ask smart questions about the benefits offered by a financial instrument before buying it just to save tax. You financial goals and condition may not be similar to that of your colleague. You don’t have to buy what you don’t need.
3. Set SMART goals and avoid some mathematical mistakes
Simple, Measurable, Accurate, Realistic and Time- Bound goals can be achieved by savers who plan early. Brainstorm, list down your goals, prioritize them and put time and money values. While setting goals be careful of mathematical mistakes such as not accounting for inflation, timing of the goals, interest rates and corpus amount. An effective way to meet your goals is to set a target for saving. Increase your saving potential gradually over a period. Setting aside twenty five percent of gross pay is good target to achieve. Channelize your money into right instruments and don’t be shy of taking expert help. This may save you lakhs in the long run.
4. Buy Insurance : Be ready for the rainy day
Insurance is a financial protection for yourself and your dependents against unfortunate emergencies. Get an adequate insurance cover. Buying insurance at an early stage can help reduce the cost of insurance significantly and also puts less pressure on your monthly cash flows. A twenty five year old buying term insurance pays approximately sixty percent less than a thirty five year old for a similar plan and tenure. Early stages of income are relatively less and should not be wiped by unplanned sickness. Health insurance helps us tide over medical emergencies. India has become the capital of all major lifestyle diseases and medical costs are increasing every day. Be smart and get a health insurance plan today. We all fall sick one day.
Saving for future is essential part of everyone’s life, the earlier one starts the better are the chances of sound financial health and ability to withstand rainy days. All you need to do is start today and start small!
You might be interested in reading: Power of small savings