Starting your investment journey while you are in your early 20s is always fruitful. But the thought of saving or investing is often the least of our priorities. With newly found financial independence, we tend to spend more than we can afford and thus many times, it translates into negligible to no saving or no investment at all. It’s only in the late 20s or early 30s that we realise that we have lost a few precious years. So without wasting any more time, here are the five most important things to know when you begin your personal finance journey.
1. No get rich quick scheme works
When you want to become rich quickly, you tend to fall for marketing gimmicks or policies that may not work for you. Always keep in mind that being patient and disciplined is always rewarding in the long term when it comes to investments
2. Be mindful of your financial situation
When people begin their personal finance journey, they tend to fall into a debt trap. The joy of earning and spending and availability of cash in hand, almost always encourages one to take up credit cards and max them out or fall for a home loan or personal loan trap, early on. To avoid this, analyse your spending habits, make monthly budgets and then decide which are necessary expenditures vs which can be avoided. If there is any extra income, first channelise it towards finishing your outstanding dues.
3. Do not rush into buying insurance policies
Insurance is not an investment; it is a risk protection product you need in case you have financial problems. So, do not buy bundled products of insurance as they are entirely different financial products than investment and serve a different purpose. First, identify your needs and then choose the insurance product. One size doesn’t fit all in this case.
4. SIP can help you fulfill financial goals
Investing in mutual funds through an SIP is the best way to meet our financial goals as it ensures that we are investing regularly. With SIP, you invest a fixed amount every month in Mutual Funds and it becomes more likely that you stick with the plan, making it easier to achieve your investment goals.
5. Buy assets, not liabilities; Invest in stocks
Invest in assets so that it can earn you more money, without you constantly having to actively work for it. You can invest in stocks, in particular dividend stocks as they provide a predictable income source. Conventional wisdom says that young executives can afford to invest in equity since their risk appetite is more. You can also consider investing in Real Estate Investment Trusts (REIs) that work exactly like mutual funds and allow you to buy into a cluster of properties managed by one company.
Wealth creation is a long term process and there is no shortcut to it, so start your financial journey early and you will not have to rush the process and you will get to reap the benefits in a few years time.