Twenties can be testing in terms of finances as you’re in the initial phase of your career and don’t have the means to spend luxuriously. And yet, there are expenses to be met, an Education Loan to be paid off, and plans to be set for your future security.
Managing finances at this stage could be overwhelming but remember, you have three more decades to go before you retire and the earlier you start saving and investing, the smoother it gets in the next decade.
Additional Reading: Financial Tips For 30-Somethings
Here are few steps you could take to secure your financial health.
Make A Budget
First things first, you need to have a budget in place. A budget doesn’t just help you to allocate your funds proportionately, it also shows you how every expense adds up and helps you avoid overspending.
Pay Off Your Education Loan
If you have an Education Loan, clearing it off at the earliest must be on the top of your priority list. Use any surplus funds you have, your annual bonus to performance rewards, towards paying off the loan. You must free yourself from this burden before you hit thirty so that you can focus on more important money moves like buying a house or saving up for life events like marriage and kids.
Set Your Goals
Have short, medium, and long-term goals in place and create a diversified portfolio to meet those goals. For example, you could put money in PPF and Mutual Funds to meet long-term goals such as retirement and pick relatively liquid instruments such as Liquid Funds and Recurring Deposits to meet short and medium-term goals. However, you must always assess your risk appetite and keep the corpus you are aiming for in mind before you choose your investment assets. Don’t be afraid to aim big. Take small steps towards your big money goals.
A common mistake that people make at this age is that they ignore the importance of Life and Health Insurance. You might be in good health at the moment but remember that an illness or a mishap may occur without any prior warning, leaving you drained emotionally and financially. Insurance takes care of your costs at times like this, supporting you and your family.
Build An Emergency Fund
Saving up for emergencies is an important part of financial planning. You must set aside a part of your income to create a fund worth six to eight months of your expense for unforeseen circumstances such as job loss, illness, etc.
Avoid getting into debt unnecessarily. If you have to take a loan to meet your financial goals, you must have a proper repayment plan in place. Timely repayment will help you improve your Credit Score. If you delay repayment or default on a loan your Credit Score reduces, thus affecting your chances of getting a loan in the future. Banks and financial institutions consider a score of 750 and above to be good.
It’s true that you have plenty of time left to make financial plans and get your life sorted but don’t delay when it comes to your investments. It will only put more pressure on you to create a corpus to meet your goals in a shorter period of time.