Benefits of Starting your Financial Planning Early
Financial planning may not be a priority when you're young, particularly if you're just starting to earn a living. The younger generation, who have been financially dependent on their parents for a long time, is more inclined to spend their hard-earned cash. Shopping for designer brands, traveling with friends, and attending concerts are all options. Financial planning should be taken into consideration.
The same was true for me. In the beginning, I was willing to give up my income for small purchases that brought me temporary joy. However, this probably contributed more to poor money management habits. However, my mother's rule was a great saving grace. I had to save Rs 5,000 from my salary. This simple rule set the foundation for better money-saving habits in the long term.
India is a land for the young. India has 66% of its residents below 35 years old, making it the country with the largest youth population in the world. However, they are at a disadvantage in financial planning. Financial planning is not something we are taught in schools or colleges. We learn it at home. Our dependence on our parents to teach us good money habits is high. Unfortunately, not all of us can pass good investment values on to our children.
Therefore, it is important to talk about the merits and benefits of financial planning early in order to reap the rewards of a more secure and stable future. These are some tips for young people who want to excel in financial management.
The rule of 50/50
When someone just begins their career and receives their first salary, they naturally tend to spend the majority of it. The 50:50 rule is a great way to teach financial discipline. The 50:50 rule states that you should first save 50% of your income and then spend 50%. This will enable you to live the life you desire and set you up for financial prudence.
Next, make sure your savings don't sit idle. They are growing. You can start small by investing in risk-averse products such as savings plans. You will discover your risk tolerance and be able to make more risky investments to reach your financial goals.
Financial planning based on goals
It is important to clearly define your financial goals in order to achieve financial discipline. Without a goal, any financial purchase is unlikely to last for the long term. There are many instances where people purchase financial products just for the joy of it. People become disillusioned over time with these products because they don't serve a purpose. It is crucial to know your goals over both the short and long term in order to avoid this fate.
People tend to be too focused on short-term planning and making sure their investments are liquid. However, this can be detrimental to your holistic planning process. It is important to determine both short-term and long-term goals. Liquid investments are great for short-term goals. However, locked-in and illiquid investments can be advantageous for long-term goals.
Financial protection is essential
Young people, particularly those who are just starting their careers, have fewer financial resources and may not be able to pay off significant debts. This is the best time to think about financial protection, particularly purchasing insurance products.
Insurance is essential to ensure financial stability for family members who are the primary earner and have dependents such as parents, siblings, or caregiving responsibilities towards grandparents. You will pay a lower premium if you buy insurance earlier than you should.
The power of compounding
Planning for financial goals should be done early to ensure that you have the time and resources to save for retirement. Long-term goals, particularly retirement, are often neglected until they become too late in life. This not only reduces the options available to you in order to meet your financial goals, but it can also disrupt your mental peace and financial stability.
Financial planners recommend that you start planning early to reap the benefits of compounding. You can reap the benefits of compounding if you have been building wealth and multiplying it for between 30-40 years.
Diversification of assets is another important rule to follow. This will help you spread your risk over multiple instruments and reduce the chance of losing your principal. A balanced financial portfolio can be used to overcome temporary fluctuations and not expose all of your capital.
You should monitor your financial health in light of changing market conditions and circumstances. It is essential to periodically re-evaluate your portfolio at regular intervals in order to stay current with market changes and protect yourself from market shocks. Financial software like the Prillionaires wealth management app is useful for this.
Your 20s will be full of excitement and new beginnings as you start a new job and travel to new locations. However, financial discipline is key to ensuring your finances are in good condition for many years to come.