Your 20s are the time to make a career, to experiment, to take risks, to pursue your dreams, to work hard, and also to have fun. You are young, free, and careless, with few responsibilities. Why should you care at all about managing your money?
That is because your 20s are also a significant transition period and you’ll be surprised to know just how much you change in the next decade thanks to greater responsibilities in your career as well as your personal life. It’s important that you inculcate these two financial habits during the foundation years of your life and career.
You should start by trying to maintain an amount equal to a month’s expenses in your account. Your 20s may seem like an odd time to think about saving, but the earlier you start, the faster your money grows. Set an agenda and identify your goals, whether long term or short term.
How much to save?
Save 30-40% of your monthly salary: The more money you make, the higher your expenses are likely to be. Lifestyle costs tend to go up with income. The key is to save smartly and spend wisely.
How to save – Do these to save as much as 40% of your income
- Keep track of your expenditure. Ensure your expenses don’t exceed your post savings income.
- Avoid going to expensive eating joints. Leave fine dining for special occasions unless you like being in debt. Alternatives could include organizing a house party or cook at home.
- Stay with family at home if you have the option. You can save on rent and utility bills, which is a major cost for most people in their 20s. This way, you can also help out your family by paying utility bills, if not rent, and hence share responsibilities.
- Try make use of public transport facilities like metros or buses. Carpooling is a good option if you have access to it.
- Avoid buying things you don't need. For example, don't invest money in hobby classes you would not be able to attend.
# 2. Investing:
Early in your working life, it is very important to make a few but smart, long-term investments. Craft your financial plan, identify your long-term and short-term goals, and choose appropriate investments to match your goals. Here are a few tips to get you started:
- Employee Provident Fund: One of the most effective ways to save, EPF mandates at least 12% of your basic salary and a matching contribution by your employer, hence making a subscriber to the EPF able to accumulate a decent amount by the time he retires. It is normally a mandatory deduction and thus automatic savings.
- Equity Linked Savings Scheme: ELSS is a form of Equity Mutual Fund, which invests in stocks of listed companies, and which not only helps you save tax, but also gives you an opportunity to grow your money. With ELSS, you can aim to earn tax free returns. It also has the shortest lock-in period (as compared to other tax saving investment options) of only 3 years.
- Debt Funds (short-term goals): Debt funds are mutual funds that invest in fixed income securities like bonds and treasury bills. They are tax efficient and hence give much higher post-tax returns as compared to Fixed Deposits, more so, if you are in a higher tax bracket.
- Equity Mutual Funds: Among the best means to build a retirement fund, Equity Mutual Funds invest in the shares of companies and have many advantages, like expert management and some of the highest long-term returns.
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