Financial planning may be just another word for a 25 year old though it should be an imperative at this age. The life cycle of a human is the most powerful predictor of economic behaviour. The human life cycle is divided into different stages. Amongst these stages a 25 year old is in the ‘ALPHA’ stage where one is young, single, and childless.

They are also financially independent from their parents. There is a tendency at this stage for individuals to spend all of their income which may in turn be robbing them of their financial future.

First of all, it’s about being responsible, so as not to be financially burdened later in life.  Every individual at this age should have a financial game plan and should try to reach important financial landmarks.

The individual must have at least four months of their income saved. The emergency fund provides a safety net especially in a volatile job market.

1. No Consumer Debt 

An education loan is ok but one should pay off credit card debts, auto loans and other debts in a timely manner and on a priority basis.

2. Emergency Fund

The individual must have at least four months of their income saved. The emergency fund provides a safety net especially in a volatile job market.

3. Health Insurance

emergency fund

Young adults generally don’t go for it and take a financial gamble. The health insurance could be expensive but it can also become a part of tax planning. More importantly a single illness or accident could be devastating. To enjoy the best deal, individuals of this age could ask their parents to add them in their health insurance plan, if the situation allows.

4. Retirement Planning

As the famous saying goes “The sooner it is, the better it is”. If an individual can avoid making financial mistakes in his 20’s he or she will be significantly better off in his or her 30’s and 40’s and after retirement.  Start saving early to create a significant financial corpus for retirement, by investing now in financial products which don’t merely grow but compound your wealth. Saving early and letting your gains compound for 40 years is really the best option.

Everybody is different, and age may not be the best milestone to use to compare one’s finances with your peers. When it comes to savings, the only absolute numbers one should focus on are specific savings goals (e.g. for a down payment, a new car, or a vacation) and an emergency fund. After that, simply save the biggest percentage of the income by putting money first into a retirement account.

About the author: Deeksha Gulati Bhatnagar is a qualified Company Secretary and a fellow of National Law School, Bangalore. She is an academic professor for general and commercial laws, corporate laws and other management and communication subjects.