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Investing in your 20’s
The 20s is considered a time to grow knowledge and be established with all your initial funds, so start with it. Concentrate on saving capital. Use the saved capital to invest in long-term growth. Later, such Investment comes as a natural source of earning for any venture that is run for a long period of time.
It’s a popular thing to invest in during your 20s – and that’s the right decision to make. According to financial experts, investing in your 20s is the right decision because when you’re young, you get to experience the power of compounding in a real sense. Especially the case if your earning potential is higher and you stay invested till your later years.
The risk of investment is minimal in your 20s, and if you get high returns at an early stage of investing, you’ll be set for life!
The beauty of this phase of your life is that you are beginning to have control of your own finances and you can decide if you want to enter the world of Investing now or wait until you have a steady job with sufficient capital to invest.
In today’s world. Investing in their 20s is on the mind of almost everyone, but it is important to understand that these are not the right times for you to enter the world of money if you are unprepared.
Does it need to be riskier? Is any special consideration to be given?
If you can handle the risk, then go ahead and invest. But before investing, it is important to understand what you are doing. It’s better to LEARN first before your start to EARN.
Either way, you can never go wrong in investing, if you follow the below-mentioned tips.
How to Approach Investing in your 20s?
For those who are interested in investing, there are two main options:
It is when an investor does his/her research into a particular asset class such as Equity Market, Bullion (Gold & Silver), Bond Market, Real-Estate Market, and others.
Here, you as an investor know what you’re doing. Or are in the process of learning. In active investing, enthusiasm and interest to learn to play a greater role.
It is when an investor does very little to no research on what and where to invest in. It’s where an investor shows not much interest in the process of investing but is aware of the importance of investing in a particular asset.
Hence, take the help of professionals or professionally handled investment vehicles such as Exchange Traded Funds (ETF), Mutual Funds, Real Estate Investment Trusts (REITs), etc.
Top Investing Tips for Young Adults:
1. Learn to save on taxes
Wouldn’t it be great if we have an option to invest whilst saving taxes? Well, do we have such an option?
Yes, you can invest in certain asset classes and save tax on such investments. The below list explains in detail;
|Sl.No||Particular||Section (for reference)||Tax implications|
|1||Provident Fund (PF)||80C||Deductions upto Rs. 1.5 lakh.|
|2||National Pension Scheme (NPS)||80C + 80CCD||Deductions upto Rs. 1.5 lakh. Additionally, Rs. 50k deductions allowable.|
|3||Senior Citizens Saving Scheme (SCSS)||80C||Deductions upto Rs. 1.5 lakh.|
|4||Mutual Fund Investing||80C||Deductions upto Rs. 1.5 lakh. (Under ELSS funds)|
|5||Fixed Deposit||80C||Deductions upto Rs. 1.5 lakh.|
|6||Unit Linked Insurance Plan (ULIP)||80C||Deductions upto Rs. 1.5 lakh. Additionally, returns are exempt u/s 10(10D)|
|7||Sovereign Gold Bond (SGB)||-||Only interest in taxable|
|8||Government Securities||80C||Deductions upto Rs. 1.5 lakh.|
|9||Hybrid Funds Investing||80C||Deductions upto Rs. 1.5 lakh.|
|10||Savings - Regular & Recurring account||80TTA||Deduction upto Rs.10,000 in interest income.|
2. Fill up the retirement corpus account
We all know retirement isn’t anywhere near us. Especially for someone in their early 20’s who just started his/her career. But, you know what? It’s the right time to start funding your retirement corpus.
This is the time when you have sufficient disposable income. This is the time when you have not much to lose. So, instead of spending it all on materialistic things. Why not invest in such an asset that’ll give you some relief in your later years.
Retirement accounts such as Provident Fund (PF), and National Pension Scheme (NPS) serve the purpose.
3. Index funds/ETF
Not everyone is aware of how to invest in the Stock Market. But, I’m pretty sure that each of you knows the importance of investing in Equities. Investing in the Indian Stock Market is like Investing in India. I have never been more positive about our economy than now.
But, to invest in Indian Equities, we need related knowledge. Right?
Well, you can invest in Indian Equities via Index funds and ETFs. This way, you’ll invest in India with little risk of losing out. How? Cause, Index funds, and ETFs are well-diversified asset classes that although might not lose all the risk involved. It might ease us into it.
Remember this now. Remember this loud and clear. “A rupee saved now is more than a rupee earned later”. Maybe you might be worried about inflation. But, spending your income without proper budgeting is like running on a freeway. You’ll get killed, eventually!
Planning gets you halfway through. And, if financial planning is what you are looking at. Then, early planning of your finances and sticking to them will surely get you through to make you rich and wealthy.
5. Side hustle
I know the word “Inflation” has come in this article earlier. But, let me stress out the dangerous impact it has on one’s savings. To simplify, If you save at 4% annually and the running inflation rate is at 3.5% (in most usual cases, this be the rate). You are kind of making 0.5% growth in terms of interest earnings.
Now, unless you have over a million dollars in savings. This tiny bit of interest income doesn’t serve any purpose. Instead, weigh more of the different sources of income you can get.
So, in order to make a real living in this cumbersome economic condition. It’s better to work on a side hustle. Something you love and can give you some monetary benefits.
Why Build Wealth and Aim for Financial Independence?
Why is it important to manage one’s finances? Long-term wealth creation is the ultimate goal. All the above-mentioned components must be managed concurrently if wealth is to be created. The importance of each component cannot be overstated. Creating wealth involves striking a balance between earning money and spending it. One sign of financial savvy is the realization that some sort of equilibrium must be established.
Having financial intelligence means you can master the five (5) key areas of personal finance.
Intuitively, it stands to reason that financial matters should be dealt with in a responsible fashion. Indeed, we must always act morally in all aspects of our lives. The appropriate path can lead to greater financial success over time.
Having a goal in mind when building wealth serves as a constant reminder. The fact that our money is going toward the greater good acts as a constant reminder that we are being extra careful with it.
Now, you may be wondering why it’s necessary to amass wealth. This is what I need to do to become financially secure. To what extent is it crucial to be financially self-sufficient? for the simple reason that it can make one financially independent of a job? Kiyosaki’s diagram of financial freedom follows.
If you are in your 20s and if you are reading this article. Then you are on the right path. It’s not only that you are on time. It also means that you are serious about your finances.
That’s very appreciable. I always believed that wealth and riches can solve if not all, most of our societal problems. And, our 20s and 30s should be concentrated on making wealth.
Remember, by becoming rich and successful financially, you’ll not only lift yourself, but it’ll also serve your entire family and friends along with you. And, that’s the best thing you can do to your people.
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