Top 8 Financial Advice for Youngsters

After getting the first job, youngsters generally get overwhelmed with the salary and start spending in an exuberant manner. They are generally not aware of saving & investing the money and most of them struggle to manage it.

It is very essential that a youngster should have a basic understanding of the steps she has to take to effectively manage her money. One should be aware that investing early plays a critical role in your life because compounding helps you to have a large corpus of money. If you want to understand how compounding works in investing, I would request you to watch the below video.

Now you should be aware that by investing early you will have a large corpus of money in your bucket. Managing money is not just about saving and investing, it is also about following your passion and having the right security with you. I was lucky enough to born in a family where I understood the power of money and started reading personal finance books at a very young age.

In this article, I will be sharing Top 8 Financial Advice for Youngsters and I also believe that it should help others as well. You should follow the below advice in the order they have written. So let's get started :-)

1. Understand Your Needs & Wants: Needs are those requirements that are extremely necessary for a human being to live a healthy life. They are personal, psychological, cultural, social, etc that are important for a human to survive. For e.g. you would require food, house, rent, electricity, etc. to survive. These essential things we can not avoid but we can try to reduce the money being spent on them. However, Wants are those products and services which you want to possess immediately or at a later point in time. They make you feel happier for some time and we can live without them. One needs to understand that not all Wants are required, by figuring out the things which you might not require you will end up saving lots of money.
2. Learn Self Control and Start Creating Budget: Buddha has said, "The person who masters himself through self-control and discipline is truly undefeatable". When you were a child, your parents would have taught you the skill of delayed gratification, if not then believe me you have to learn this skill as soon as possible. By delaying the gratification, you would be able to save enough and spend only on essential items. Delaying gratification doesn't mean that you should not follow your passion. Whenever you need to purchase anything, check with yourself if it is really important. If you think it is important, then go ahead and buy that thing else avoid. Coming to the Budget, you have to maintain a diary where you will write down all the essential expenses that you need to do in a month and also keep some money for unwanted expenses that may occur. By creating a budget, you will have enough knowledge of money you can save every month. So, if you start reducing your expenses, then you will have more money to save.
3. Purchase Health Insurance: Being a youngster, we generally think that we are doing exercise and keeping ourselves fit then nothing will happen to us. I hope this would have been true but that is not the case because one can get ill at any point in time. So, we should purchase the Health Insurance of sufficient Sum Insured as soon as we start the job. Another thing you need to understand is that when your age increases, the premium of Insurance policy also starts getting increases, and it becomes difficult to purchase the Insurance policy in old age because Insurance Companies may ask to have a full check-up of your body and they may reject as well. I have seen many youngsters are reluctant to buy the Insurance Policy because the company in which they are working are providing health insurance. It is good that you are getting health insurance from your company but it could be possible that when you have to file for the claim you are jobless and then you need to spend lots of money from your pocket which will make you financially broke unless you have enough money to spend. Apart from purchasing health insurance for yourself, you should purchase health insurance for your parents as well if they are not having any health insurance of their own. I will write another separate article for you to understand how you select the right Insurance and the sum insured for yourself.
4. Have sufficient Emergency Fund: Emergency Fund is separate money being kept to cover large unforeseen expenses such as unforeseen medical expenses, home-appliance repair or replacement, major car fixes, and costliest of all unemployment. Emergency Fund should be very liquid that means you don't need to wait to get the money. While keeping the money for an emergency you should not care about the Interest Rate that you are getting, the only thing you need to care about is the money should be liquid. Now coming to the amount you need to have and where you park that money, I generally prefer to have at least 6 months of expenses and would prefer FDs because they are quite safe and very liquid. For example, if your monthly expenses are ?20000 then you need to have at least ?120000 as Emergency Fund. In your expenses, you should add all the EMIs of loans that are currently running. If, for any purpose you need to spend from your emergency fund then try to again build your emergency fund in a short time.
5. Purchase Life Insurance: Life Insurance is critical insurance that every single person should be having because when unfortunately someone dies, the family has to go through emotional trauma and as well as financial problems. Although, emotional trauma can not be reduced by buying life insurance but financial support also plays an important role. You should buy life insurance as early as possible because you need to pay a large premium when you start getting older. Now the question comes is which Life Insurance one should purchase as there are different types of life insurance like ULIP, Endowment, Term, Money-Back that exists in the market. I would suggest having only Term Insurance is sufficient as it is pure insurance without having any investment part in this. You should have term insurance of at least 20 times of your annual income. Suppose if someone having a yearly income of ?500000 then she should purchase Term Insurance of at least ? 1 Crore or ?10 Million.
6. Start Investing for Retirement: Retirement is one of the underrated topics which generally not many people want to talk about. After getting the job, one should need to start investing from a young age as the power of compounding supports you to have sufficient retirement corpus for yourself. Now the question comes is how much you need to save and where to invest that money. It is altogether a separate topic and I will be writing a separate article for this but you may follow the simple rule of investing 10% of your net salary in small and mid-cap mutual funds. Do your own research also before investing in such instruments because they are very risky, although if you are going to invest for more than 10 years then your risk would be very low. If you want to know more you can watch the below video as well. https://www.youtube.com/watch?v=uO8EoK6wUIY
7. Goal-based Investing: To save money it is very crucial to have the right goals, take a notebook and write all the short and long term goals that you want to achieve. It could be your new House for which you need to have down payment or it could be you want to invest in your marriage or it could be that you want to buy a new bike or a car. While writing your goals make sure you write the amount you required and the timeframe when you want to achieve that goal as it will help you to understand the amount of money you need to invest per month. Now coming to the calculation and where to invest it is altogether a separate topic which I will cover in another article. But you can go through the mentioned video to understand more. https://www.youtube.com/watch?v=HBbAcyxv568
8. Keep aside some money for your Passion: Passion is one of the most underrated topics which most of the personal-finance books do not talk about. But I would suggest you have your specific goals for your passion and calculate the money that you require for that particular goal and when you want to spend that money. For example, I love to read books and do adventurous activities and travel, every six months I tried to travel. So to travel I would calculate the money that I need to save per month and start saving that money in mutual funds or RDs.

All the above advice I mentioned is very generic and I am sure that it will help you to become more curious about personal finance and become a more mature person in terms of managing the money. As I mentioned, I will be writing more articles to help you to manage your money efficiently.

If you have any feedback or query, I would love to know. Thanks for reading :-)

Disclaimer: Before making any decision do think twice and if required take the help of a financial advisor, I am not responsible for any loss being occurred to you although I have shared the best of my knowledge.