You are in your twenties…Just started your career, got a very good job, achieved a milestone and planning to marry and settle in the next few years…Looking forward to enjoying your life and having a secure future.

Now the questions that might worry you at this stage are :

What to do next? Should I save money now or later ? Is it the right time to think about Savings and Investment? If so,How to handle my Personal finances? You are a beginner and have no knowledge from where to start and what should be your plan of action.

According to various experts,the perfect time for you to start your Financial Planning is in your early 20s…Yes you heard it right,in your 20s when you tend to start your professional career.At this point ,you have lesser obligations and can afford to take risks as well in order to build a good Financial Portfolio.

A person in his early 20s ,starting a career, having no major obligations and incurring only nominal expenses can afford to save a big amount out of his earnings.

At a young age,if one can actually save and also invest a good amount,that will be rewarding for him throughout his life. Say,if a person earns Rs.30000 p.m and saves even 40% i.e. Rs.12000 out of it, this means his annual savings will be Rs.144000 and this is a fairly big amount to further invest and grow your funds.

You can create a very good corpus for your retirement with this money and hence enjoy the benefits of a well built investment portfolio.

If you follow these 10 Financial Planning Tips, you are somewhere on the right track.

10 Financial Planning Tips to follow in Your 20s :

1. Set Your Financial Goals :

 Firstly,make yourself clear about your financial goals i.e.what you exactly want to achieve? What are your Short term and Long term Objectives ? Your decisions shall be based on your goals,so make sure you have well planned financial goals for both short term as well as long run.

e.g.Buying a car in the next 2 years is your Short term goal.While Planning for your retirement is your long term goal.

If you are a budding entrepreneur or want to be one,also check our blog : 5 Financial tips for startups in India !

2. Learn the power of Saving Now :

Start saving now, the earlier you develop this habit the better you can enjoy its benefits.Let savings become a part of your monthly routine.Not next week,next month or next year – Start saving Now ! Savings at an early age will help you live a comfortable life ahead and you will be able to achieve your financial goals in an efficient manner.

Saving and Investing at an early stage not only helps in generating a good Corpus but also gives you a sense of financial as well as emotional security.

You can also go through our famous blog post : How to save money : 7 tips only smart people know !

3. Know the Magic of Compounding :

 Like a tree cannot grow instantly, firstly you have to sow it ,nurture it for a long period and then only you can enjoy its fruits.Similarly,you cannot become rich overnight,you have to plan,save and invest wisely in order to enjoy maximum returns.Thus,if you invest small amounts today ,you can build a good corpus for your retirement.This is possible with the magic of compounding.

In simple terms,Compounding refers to when  Interest of first year  is added to principal amount of next year and in the next year you earn interest on both Principal +Interest(For Yr 1).This means you earn not only on the amount invested but on the closing balance including interest earned.

e.g. An amount of Rs.10000 invested today @10% Rate of return shall translate into a magical figure of Rs.828428 after 10 years.This is possible through the power of compounding.

So,the earlier you start investing,the less amount you need to invest over a longer period and the maximum returns you can enjoy.

Even small amounts saved today can help you build a huge corpus for your after retirement life.

SIP or Systematic Investment plan in mutual funds is a good way to start investing small amounts.This is a perfect example of the power of compounding where you tend to get a good amount at maturity based on the right asset allocation.

4. Learn Self Control :

Now,this is one factor that is totally based on you -Self control.You need to control your desires and come out of the fantasy world.Enjoy your life,but don’t forget to save for your future.Put a hold on buying luxurious items or the ones which can be delayed.

Check your priorities and spend on your necessities first rather than overspending on luxuries.You can anyways enjoy them once you have set aside funds to make yourself financially secure.Avoid credit purchases and reduce your credit card bills.

“The most important investment you can make is in Yourself.” as quoted by Warren Buffett.

Initially, spend on gaining knowledge and experience and not on material things.Knowledge you earn at this time shall reward you throughout your life. Keep yourself motivated, if not much you can go through some of the Best Inspirational Financial Quotes to boost your confidence.

5. Stop Thinking and Start Investing : 

This is the right time to plan your investments.So,go ahead and take the first step after saving your money i.e. Invest your money. It is your hard earned money,so analyse all the aspects before investing.Considering all the factors like : Risks,Returns and Period of Investments.

Before investing,you must make yourself clear about the following :

• Your Financial objectives -You have Short term or Long term objectives.
• Quantum of risk you are willing to take -No risk, low risk, moderate risk or high risks. This is totally your personal choice as to how much risk you are willing to take.
• Duration of investment -This is based on the type of objectives you have. Your investment duration can vary from few days to months to years as per your requirements and surplus funds.
• Amount of investment –Your Investments are based on your savings. So,the more you save, the higher you tend to invest.
• Returns expected -You want fixed but assured returns or risky but variable/high returns.

Have a balanced Investment portfolio consisting of :

• Short Term Investments
• Long Term Investments 

Now thinking where and how to invest ?

Go through our popular blog posts 7 Best Short Term Investment Options in India and 7 Best Long Term Investment Options in India to help you in your investment journey.

As a person grows older, nearing his 30s or 40s ,his responsibilities and expenditure also tend to increase simultaneously.So,if you are able to save the maximum out of your earnings at an early stage and further invest it properly, you will be ahead of others and can enjoy a peaceful after retirement life.

6. Prepare for Rainy Days :

 Set aside certain funds for any kind of emergencies that may arise.Simply stated,it is better to park some of your surplus money as an Emergency Fund that has high liquidity value and can be converted as and when required.Funds that are locked in for longer periods and are not easily available won’t be of much help in case you need them immediately.

So,just like the ant that stores enough food for rainy days ,you should also have in store enough funds if some need arises.

7. Have a Savings & Retirement Plan : 

It might sound a bit strange,to save for your retirement at such a young age.But,looking at the need of the hour,it is better you do it now.Gone are the days,when parents could rely on their children financially and live a happy life.You should have a good Savings & Retirement Plan for yourself to live a comfortable and financially independent after retirement life.

With the power of compounding,you tend to earn more money if you start retirement planning in your 20s, rather than doing the same in your 30s pr 40s. You might not understand its value right now.But,a sensible retirement plan and money saved today will definitely give you peace and happiness once you grow old and retire.

8. Review your Insurance coverage : 

The objective of having Insurance should not be limited to just another way of investing or growing your funds.Insurance is for your own benefit and to provide financial security to your family. Health Insurance and Life Insurance Plans should be an essential part of your Financial Portfolio.

A good health insurance plan can be of help anytime when need arises.So,don’t forget to have adequate risk coverage for you and your family.

9. Diversify your Funds : 

Once you start saving, your next step should be to move towards the growth of your funds which can be possible only through systematic financial planning.Diversification of your funds is one method to effectively grow your funds and generate good returns.If you think to invest all your surplus funds at a single place,you will not get much out of it.

But,yes if you select a Diversified Financial Portfolio comprising of various investments ,you can expect higher returns.You are young and can afford risks also so you can include the following in your portfolio :-

• Fixed Income bearing/Risk free Investments like Fixed Deposits,Public Provident Fund,Post Office Saving Schemes etc.
• Variable Income/Risky Investments like Mutual Funds(Debt funds or equity funds), Equity Linked Savings Scheme or Direct Equity etc.

10. Make yourself Financially aware : 

You don’t have to become an expert or learn the skills of a Financial Advisor,its just that you need to know the basics.Make yourself aware about where your money is going i.e. where you are actually investing.Have a basic knowledge of the various aspects related to Investing like :

• Risk factors
• Type of Investments
• Rate of Returns
• Period of Investment.

“Know what you own,and know why you own it” as said by Peter Lynch.

For detailed analysis, you can anyways take the help of reliable Financial Planners who will guide you to build a Good Financial Portfolio.But,make sure to do your basic homework as well in order to understand and workout the best financial plan to meet your financial goals.

To summarize broadly, your money should move in the following 5 directions :

1. Saving and retirement plans to meet your long term objectives.
2. Your regular monthly expenses.
3. An emergency fund.(some liquid investments)
4. An adequate insurance cover.
5. Meeting your other long term goals like planning for a holiday, celebrating some special occasion or any other additional but not so frequent expenditure.

Now,how you set the order of above 5 points is upto you based on your priorities and financial objectives.

Your 20s is a crucial period of your life that brings a lot of changes, You turn from a teenager and a college guy to a more responsible and career oriented family person.

So,for all the correct decisions taken at this point you are going to reap the benefits for lifelong.

Financial Planning is one such big decision, that if taken carefully will bring a lot of freedom and happiness in your life.

So,Think before you Act and Act before it is too late.

If you have any points to add upon, any opinion thereon, feel free to share in the comments section below.

Any of your financial decision, that helped you in your financial journey, do share the same to help others learn from it.