Accumulating wealth is not an easy task and takes a lot of time. The 20s are the right time to start wealth building. As you grow up and start earning, you enter a new phase of life. You look forward to having more resources and a better lifestyle.
Putting aside a portion of your earnings from your early or mid-twenties will give you security for the years to come. It is a simple way to learn financial responsibility and implement it to save yourself from stress later on.
The phase when you achieve financial independence is a crucial time of your life. You have achieved a significant milestone, but now you have bigger responsibilities to handle. Your earnings may seem too much to start with but would look like too little compared to your impulse to spend.
You must understand the significance of this time of your life from a financial perspective. The best time to start investing is in your 20s. You get enough time to acquire money management skills and build a financial discipline for the rest of your life. Even if you invest small amounts of money, you get the benefit of a longer investment duration. Compounding works in your favour by allowing you to accumulate wealth over time.
You are at just the right age to start building the habit of investing. Here are some tips to help you take the first steps to achieve your wealth-building goals:
1. Prepare a financial roadmap: The first step to becoming wealthy is making a financial plan. Carefully prepare your budget, including meaningful expenditures, and avoid luxury items like expensive cars or homes. Allocate a fixed amount to your emergency funds and focus on paying off any debt.
2. Focus towards increasing earnings: Saving money is important, but multiplying it will help you become wealthy. You must focus on investing your money to get greater returns. You can also fast track your growth by upgrading yourself and acquiring new skills that can help you increase your income.
3. Build multiple income streams: You have immense energy in your 20s and with the right mindset, you can set up multiple streams of income. Direct your efforts to generate revenue from newer methods like freelancing, online jobs, and social media.
4. Generate passive income: Review your resources and skills to find the best way to create passive income. It requires you to invest once and generates returns automatically for a long time. Many different assets can provide this type of monthly return. You can pick from stocks, bonds, real estate, or digital properties like ebooks.
5. Assess your risk appetite: Do not be afraid to step out of your comfort zone and realise that the path towards success lies through uncertainty. It is advisable to embrace traditional as well as upcoming investment instruments while taking calculated risks.
Investing your money is as important as earning it. You can build a strong foundation in your 20s by investing in vehicles suiting your risk profile and income background. Here are the most popular schemes for starting your investment journey:
1. Public Provident Fund (PPF): PPF is a long-term retirement scheme devised by the central government. It currently offers 7.1% interest. Investing in the scheme at the beginning of each financial year helps you generate reasonable and tax-exempt returns.
2. Liquid Funds: Liquid Funds are a type of debt fund designed to provide income and assurance for capital protection. A Fund Manager invests in securities with maturity periods as short as 3 months (91 days), making it an ideal emergency fund. It is a suitable avenue if you need quick access or liquidation options on your investment portfolio without taking high risks.
3. Recurring Deposits: RD (recurring deposit) works as a short-term saving scheme that you can use as an emergency fund. You have disposable funds at hand when you invest in an RD for 6 months to 1 year and can even earn interest at the rate of 6%-7%.
4. SIP: Systematic Investment Plans or SIPs are the simplest way to invest in the stock market. Choose a weekly or monthly investment plan and put aside some money each month to grow your wealth.
5. Debt Funds: Debt funds are a low-risk financial instrument that generates a steady income through interest. It is the most recommended type of investment vehicle for those who wish to take a minimal risk.
6. Life Insurance: You can save a lot of money by getting life insurance coverage in your 20s. As you age, the premium of your insurance will increase too. Not opting for insurance is not advisable as the cost of healthcare is rising and you must be prepared for any medical emergencies.
Building wealth takes time, effort, and dedication. You can continue growing by putting in the time and effort necessary for your financial growth. Using resources and upgrading your skills in your 20s, you can meet your wealth-building goals.
As you enter your 20s, you step into a new world of independence and responsibilities. Earning good money is just the start of the journey towards building wealth. You must save and invest your money to accumulate a large corpus over time.
There are some rules of financial management that will benefit you in the long term if implemented early on. Control spending by buying what you need and not all that you want. Put away a fixed percentage of your earnings as savings for retirement or other investments. Prepare for contingencies by setting up an emergency fund. Buy insurance to cover major medical expenses during an emergency.
Make sure to pay off any debt, including student loans, car payments, and credit card bills
that may be dragging you down financially.
Depending on your risk-taking capacity and financial goals, you must select the best investment instruments. A few recommendations are Public Provident Fund, Liquid Funds,
Recurring Deposits, SIP, Debt Funds, and Life insurance.
The best way to start building wealth is by devising a financial roadmap with well-defined goals. Make sure your wealth management strategy is not influenced by what others around you are doing. It must be based on your financial needs and risk appetite.