Youth Financial Planning – Reach For the Stars

Boom in Indian economy, growing industry has filled the pockets of youth. As far as the income is concerned, given the boom in economy and its ever improving aspects, opportunities have never been better!

From Last 3 Years the disposable income has grown substantially, so the spending habit. It’s definitely a happy situation to be in! But youth ignore a great habit – SAVING MONEY. The rationale is simple – every youth is assuming that future is looking great here then what is the need to set aside money for future? but I think that as surplus money is growing it is the right time to save money for future needs like for your child 1^st birthday party, his/her education etc. Instead of spending money in a thing or service that you don’t need in actual SAVE that money and see the power of compound interest over your money in coming years.

Here I will try to explore as many possibilities to guide you how to save money and have good financial portfolio. I am certain that you will like my article.

Start Early

If you start earning from age 21, then start saving immediately. Please don’t wait till age 25. Rs 1000 investment per month for 20 years will become 17 lakhs (assuming 18% interest as offered by some good Mutual Funds)

Why you invest

Factor 1 - INFLATION

If one thing cost you Rs 100 per day then the same thing will cost you Rs134 after 5 years (assuming 6% inflation/annum). So to maintain the same living standard you have to spent more money.

Factor 2 – The Standard of Living

In near future, you want to have an excellent standard of living but that would cost you much more than that of now. You wish you have your own car instead of going by bus or public vehicle. As the time goes, you will have dependents and you will be the one who will take care of his/her financial needs.

Things to be focused in early stages

POINT 1 – Maximize the surplus by cutting unnecessary wasteful expenditure.

POINT 2- invest the surplus in instruments which are best suited to your needs, your profile and your risk appetite.

Set a objectives

Before investing, set a clear objective. There should not be any lack of clarity in your future needs. Set your risk appetite. Set the goals.

Example: If you want to be a Crorepati after 15 years?

The solution is not always a 100% low-risk portfolio or a 100% high-risk portfolio. In fact for most of us a blended asset allocation will work best. But even then equities will and should account for the largest chunk of your portfolio.

Equities

Some people call it SATTA MARKET, KAALA BAZAAR, but the truth is that they have lost their money based on fool theory (one fool purchase overpriced rate stock and then sell that stock to a bigger fool). Over the long term equities are the best instrument for maximum returns.

A common problem associated with stock investment is the method of selection. I am continuously trying to develop your skills to select the MULTIBAGGERS out of dirt. Often investors rely on “tips” of brokers/friend to decide which company to buy into. Before investing into a particular stock he must have an understanding of economy, interest rates, political and legal environment and lot of other things.

As a young investor EQUITY IS A MUST IN YOUR PORTFOLIO.

Fixed Income instruments- PPF, NSC etc

Offers assured fixed returns, normally 8% per annum. Safety of Capital is the major difference between equities and fixed income investments. However, the stability in fixed income comes at a price. If there is any subsequent hike in interest rates you will not be able to gain due to locked-in period. PPF runs over 15 year time frame and investors are required to make a minimum investment of Rs500 to keep their account active and at max you can deposit 70000 in a financial year.

This instrument is best suited for investors with a low to moderate risk profile

As a young investor, a small portion of your portfolio should be invested in fixed income instruments to impart a degree of stability to the portfolio.

Mutual Funds

You directly invest in aforementioned avenues when you invest in equities and fixed income instruments. Mutual fund put a virtual layer between you and your investment. Mutual fund managers collect money from a large number of investors and then invest that amount in various instruments according to their policy and guidelines. These are expert MF Managers.

ULIPS

Unit Linked Insurance Plans. Insurance products like endowment plans are tools for taking care of future expenses and therefore combine long term savings and insurance. By these plans you can have a life shield which assures a corpus to your family in case of unfortunate death of policyholder. One should not let tax saving or just returns influence your decision of buying and insurance plan. This scheme provides insurance with investments and it is proved that over long period ULIPs are best instruments after equity. ULIP manager invest your money in debt and equity both, hence their performance is market linked.