Indian education system is imperfect in a lot of ways but one of the biggest drawbacks is they do not offer any course in personal finance. As a result young adults as they get out of college and start working and making money, they have no idea how to manage their money. And by the time they realise it is often too late. I am going to give 5 simple personal finance tips which can help you manage your money better.
- Start your retirement planning with your first job
Retirement planning should start with your first job earlier you start better it is. the simple insight here is early start can make a huge difference in your retirement corpus. Let’s take an example if you Invest Rs 10000 monthly and you start at 25 versus if you start at 3o years and return on investment is 10 %. The below graph shows your returns at retirement assuming you retire at 60.
If you Invest Rs 10000 every month and start at 25 your Retirement corpus is 6.5 crores
If you Invest Rs 10000 every month and start at 25 your Retirement corpus is 3.52 crores
Source: SIP Calculator Bodhik
So starting 5 years earlier can double your retirement corpus. This is the power of compounding and this one power every young adult should know.
2. Health Insurance is not optional
One cost head which keeps increasing as you age is health care cost. According to NSSO Survey report, the healthcare cost has been increasing by an average of 10.6 % CAGR. This is going to be the biggest cost as one grows old. So buy a health insurance policy now.
3. What your dad thought about money management may not be right now
Our parents lived in a different era, when there were limited avenues of investing money so most of their money was parked in Fixed deposits, post office schemes or PPF( See how your money grows with PPF). But today we have multiple other avenues like equities, mutual funds, debt instruments for you to invest. So listen to your dad but do your analysis.
4. When you get a salary raise, do not increase your expenses in same proportion
Salary raises are meant to be enjoyed and some splurge is fine, but remember one thing, when you get a salary raise your net savings should increase no just the expenses
5. All great personal finance plans start with a great budget
The starting point for a happy financial life is a good budget. Always create and track your budget. Tracking your cash flows how money comes in and how it goes will give you insights which no financial planner will be able to give you. Use any of the many budgeting tools available or simply start with an excel or google spreadsheet and plan your budget today.