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A Beginner’s Guide To Personal Finance And More

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To some of us, the pandemic brought a moment of reckoning, offering a pause to reassess our priorities in life. With healthcare emergencies, loss of jobs and income, and massive salary cuts, the young were the worst hit due to Covid-19’s financial fallout.

It highlighted the need for young people to become financially more resilient than ever before. One of the very few silver linings during the economic slump was an influx of young, first-time investors witnessed across major economies. 

“Because of the lockdown and work-from-home situation, my expenses have radically plummeted. All the money that I would have spent on drinks, food, and vacations is going into savings,” said Himanshu Saxena, a young professional, who recently started investing in the stock market through a digital trading platform.

There was some truth to Abhishek Bachchan singing: “The whole thing is that ke bhaiya sabse bada rupaiya,” in Bluffmaster. Representational image. Photo credit: blankpagebeatdown.com

Like him, a number of young investors, with a wide arsenal of digital accessibility, simplified platforms (like Zerodha and PayTM Money), and real-time financial data, are taking the market by storm. 

If you are feeling left out and don’t know where to start, here is a beginner’s guide to traditional and not-so-traditional investment in different forms of capital.

While market investment is an important denominator in financial management, there are other factors as valuable to secure one’s economical and overall well-being.

Let’s Begin With Budgeting 

Young adults, especially women, are kept away from any financial decisions at home. Money, at large, plays a strange role in Indian families, but is seldom talked about openly.

When a young person begins their independent life, they often carry on the conditioning—using money with little or no awareness.

One of the first pieces of advice that any financial consultant offers is that of budgeting. It is to have a full picture of what is coming in and what is going out, money wise.

  1. Note down your net or take-home income. If you have any secondary income that comes in, be it through side gigs or freelancing, take that into account as well. 
  2. Make a list of fixed expenses. These are the expenses that remain the same each month. For e.g. rent, subscriptions, insurance premiums, any other utility bills (WiFi, gas) etc. 
  3. List other fixed expenses under liabilities. These are expenses that one is obligated to pay. For e.g. student loans, personal loans, mortgage payments etc.
  4. Now, make a list of variable expenses. These change according to one’s needs and other external factors. These include your grocery, electricity bills etc. Note down an average amount based on last months’ receipts. Make sure to note the average on the higher side. 

Whether you use spreadsheets, digital apps, or a notebook, it is important to list it all down, to see how much you are earning and how much you are actually spending.

Is the remainder green or red? Meaning, are you left with some savings at the end of it, or do your expenses exceed your income?

Saving: The Earlier, The Better

Saving is a major financial skill. It helps one develop a sense of self-sufficiency and confidence. Among the young, the common notion with respect to saving is that it involves compromising on one’s wishes to live in the here-and-now.

However, the reality is quite the opposite: efficient saving does not limit your desires, but liberates you instead. Let me explain how.

1) Elizabeth Warren’s book, “All Your Worth: The Ultimate Lifetime Money Plan“, offers a very useful template to budget one’s finances. The rule is called “50-30-20”. The equation simply divides your post-tax income into three parts:

a) 50% goes to needs that include your basic expenses of roti, kapda and makaan. These are expenses that are most essential in life, and cannot take a back seat.

b) 30% goes to wants. These are expenses that are flexible and can vary. It includes drinks, dining out, movies, vacations etc.

c) The remaining 20% goes to your savings. This includes parking cash in secure accounts for easy access, or investing it in assets.

2) While saving it is extremely important to work towards an emergency fund. Ideally, you should have at least six times your monthly needs. This fund offers a cushion at the time of a career transition, medical emergency or an abrupt job loss. 

3) Another popular technique for saving is “pay yourself first”. No matter how small an amount you get: as a stipend, one-time remuneration or cash prize; drop a portion of it into your savings. 

Saving can help you take that backpacking trip you have been wanting to take for a while. Representational image. Photo credit: The Quint.

Saving at an early age not only helps in emergencies but also gives you the agency to make future investments and life-changing decisions. It can enable you to take a holiday, access health services such as therapy or gender-affirming surgeries etc.

Investing: Time Is On Your Side 

Once you are able to streamline the flow of your income and expenses, it is time to set financial milestones for yourself. Being young means you have time on your side—which is a massive asset in investment.

Investing early puts one at an advantage because of compounding. It means if you invest an amount and do not withdraw it for a long time, the return will get invested effectively and earn you more returns.

With easy access to the market and online guidance, a young person can explore a number of investment opportunities. 

1) Begin with investing a small amount, to keep the risk factor at the lowest. Once you have charted the investment landscape and gained enough confidence, you can gradually raise the stakes.

Do not shy away from getting help from a financial advisor. They can help you outline an investment strategy to fund your future financial goals. You can also follow Instagram pages such as Wealth Café Financial and Value Tortoise to help you with this.

2) One of the safest and hence, low-risk investments is bank deposits. A lump sum can be invested in the fixed deposits, while a small fixed sum can be invested, monthly, into recurring deposits.

It is to be noted that low-risk investment also comes with low returns. Fixed and recurring deposit accounts can be easily accessed over the app or website of one’s bank. 

3) If one is looking for long-term investment and good returns, investing in mutual funds is the most popular choice. Since mutual funds are managed by expert fund managers, the risk of losing money is comparatively low.

Based on your goals and timeline, you can choose to invest in equity, debt, or hybrid funds. A number of digital platforms (such as Groww and ETMONEY) help young professionals invest in mutual funds of their choice. 

4) If you have a higher risk appetite and good knowledge of the market, only then is investing in stock markets recommended. Stock markets, under the right circumstances, can offer the highest returns among all investment options.

However, please note that it is extremely volatile and its pitfalls can have severe consequences. 

One needs to carefully weigh the risk against returns before deciding to invest in the stock market. Representational gif. Credit: indiaforums.com

5) One of the safest and most popular investment schemes backed by the government is the PPF (public provident fund). It is a long-term investment option with a tenure of 15 years.

PPF offers high returns and the interest earned through it is fully exempted from tax. 

Do not keep all your eggs in one basket. Try to diversify your investment portfolio, depending on your financial goals, timelines and risk-taking appetite. 

Investing In Non-Traditional Capital 

The pandemic disrupted the “normal” that we knew. When systems of finance, transport, markets etc. came to a standstill, all that we were left with was: people and local resources.

As a young person, while it is important to invest in your financial goals, it is also as important to build alternative forms of capital. These forms of capital unlock wealth that also includes money, but is not limited to it. 

1) Invest in a cause that you care about – Solidarity brings a sense of belongingness and purpose to one’s life. You can even start a kitty with your friends and pool in your money. Each month, one of you gets to decide which cause/organisation you all would like to contribute to.

2) Invest in social capital – These include relationships, connections and community. Create a community of like-minded people, or join one. There is strength in numbers. Share what you have; borrow and lend, whenever possible.

Women at a self-help group’s meeting. Representational image. Photo credit: Chaitanya, via carnegiecouncil.org

3) Invest in natural capital – All material and financial capital is heavily dependent on natural capital. Learn more about your local ecosystem. Create a kitchen garden of your own, learn to grow your own food. 

4) Immerse in realities that are different from your own – Experiencing a different reality through travelling, working or volunteering can offer you lessons for a lifetime. 

5) Lastly, invest in knowing yourself – Enquire into the possibility that you are and invest in your own potential as a person. Finding an anchor within, which can help you hold up against storms. 

In the world that we live in, finances play a significant role in shaping our present and future. Yet, as human beings, we are too complex to solely depend on money as a life force. It is time we tap into the abundance of capital that lies all around us, unnoticed. 

Featured image is for representational purposes only. Photo credit: Pxfuel.

Note: The author is part of the Sept-Oct ’21 batch of the Writer’s Training Program

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