13 JAN 2017
Build the habit of saving & investing
Youngster's search terms
One thing that is common with youngsters across the world is the propensity to indulge in spending on materialistic possessions or having a good time. The search terms of youngsters will be full of terms like' latest mobile phone', 'price of iphone', 'latest fitness band' and 'pubs near....'. The search terms will never be savings or investment related. Nobody in his early 20's would like to search for 'investment plans' or 'best savings plans'. It's only when the person reaches in his 30's that he realizes he needs to save money as he may one day need money for his retirement or buying a house etc.
Why youngsters don't have phrase 'savings and investments' in their search terms?
But why is it this way? A guy who can buy the latest phone at Rs.30000/- can definitely afford to save Rs.2000/- a month for investing it somewhere. It is the connotation of savings and investments that's ignored. Savings and investments translate into thoughts of large amounts.
So, people keep on waiting for that 'extra' income to start saving as they always feel that savings and investments can only be done when you earn a lot of money. This is a misconception among teens and youngsters. We try to dispel this misconception by providing some little tips for youngsters by which they may get into the habit of saving and investing.
- Make financial goals; short-term, medium-term and long-term. Decide what is the amount that you need to fulfil these goals when the time comes for it. Read it daily. Slowly, the thought of fulfilling these goals will percolate down into your psyche and you will be geared towards meeting those goals.
- Draw a budget. Even if you are single and may not be running the show at home, you'll be surprised about the amount of money that you are spending on things that you may not need. Remember what Warren Buffet said,” If you spend money on things that you don't need, you may one day end up raising money by selling things that you need”. Always make it a point to spend what is left after saving and not the other way round.
- Start small. If you are earning Rs.15000/- a month, start the month by putting away Rs.2000/- aside in a systematic income plan(SIP) or a recurring deposit. Mark an auto-debit in your a/c towards this SIP so that you do not get tempted to spend this money.
- Your search terms should also include 'savings and investments'. Although in the beginning, you may not understand these terms, but over time, the more you are at it, the more familiar these terms will become.
- Buy an insurance plan, say, a Term Plan. When you are young, the premiums will be cheaper. Insurance premiums will increase with age. Therefore, it makes sense to buy a term plan when young.
- Invest in wealth-building plans. With early investments, the chances of you reaping the benefits of compounding are very high. Compounding is the principle wherein your money multiplies more than the aggregate of principal and interest because of the interest earned on the added interest. So, for instance A invests Rs 10000/- today at 10% p.a for 10 years and B invests the same amount after five years from now at the same rate for 5 years, both won't receive the same amount of money at the end of the term. This is due to the compounding principle.
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