The young people in their early 20s – 30s with a ‘white-collared job/ profession is commonly referred to as Young Professionals. Do you belong to this bunch of young and ambitious youth?
Then you are likely to have just completed your studies and are filled with dreams and aspirations.
So what are you aiming at acquiring and possessing in life soon? Is it your first car or a home in your name? Or is marriage on the cards to fulfil your dream to start a family with your chosen one?
Or do you belong to that wise category of youngsters who are looking for know-how to gain insights into personal finance for working professionals before making any life-changing decisions?
Is managing your finance difficult?
It has been commonly observed that young professionals like you find it difficult to manage or consider the thought of managing their personal finances at the onset of their careers.
That is primarily because –
You feel life has just started for you and you are too young to think of saving for the future as you have a lot of time at hand and can afford to think about financial planning and investments a few years later.
Do you lack knowledge of personal finance that could include but not limited to how to go about it? What it is all about? When to start saving/ investing? What is the right amount to invest – is my earning too little to consider? What is the right time to begin? What is the right place to invest to optimise return? etc.
You may be wondering who can guide you properly and not treat you as a ‘run-of-the-mill’ investor.
It takes time for a youngster like you to understand the importance of managing expenses responsibly early in life; at times till you have undergone real-life exigencies yourself.
If you find any of the reasons even somewhat matching your current mental state, then take a deep breath and read on, as this article will not only guide you on how to go about with personal finance for working professionals like you but also make you mindful of money-mistakes to avoid; thus saving you from guilt and repentance in future.
A thumb rule to remember:
Irrespective of whether you are married or not, you should follow the 50:30:20 rule that says you must –
Budget your living expenses within 50% of your monthly income at hand. ‘Living expenses’ can range from repayment of your education loan, rent to be paid in the city of your work if you had to relocate, your groceries and utility bills, medicine, local conveyance, insurance, etc.
You must try and save/ invest 30% of your monthly income to live your financial dreams in future.
20% of your monthly income you can spend on your free will on partying with friends, dining out, buying gifts and accessories among other things for self and/ or loved ones.
This basic rule will ensure you have laid the foundation for your personal finance and move ahead with planning your investments to live your financial goals in life by following the steps detailed here.
A step-by-step guide to managing your Personal Finance for young professionals
Step #1: Identify your basic needs
In order to optimise your living expenses, you must understand your basic needs as listed below to ensure you and your loved ones are financially safe and free from untoward financial burdens in future.
This is the first step to effectively plan personal finance for working professionals.
Education loan –
If you had availed education loan to complete your higher education, then your first priority should be to set it off at the earliest.
This is because the interest paid on this loan is considerably high that can be fruitfully utilised to use to plan other investments towards wealth creation.
So other than the EMI debited from your account; whenever you get some extra income like incentives or performance bonuses, you must direct a major part of that money towards setting off your loan.
Same for your credit card bills and personal loans, if any. This is because you must remember that loans have never done good to anyone, but have eaten into your disposable income.
Health insurance –
Even before your start planning your finances, you must buy yourself health insurance coverage. Even if you are eligible for a medical insurance cover from the organisation you work for, still you must consider purchasing one on your own.
That is because the younger you are, you are expected to maintain the best of health; and the cheaper your insurance would cost.
If you are reading this article today, you are either a ‘Covid-Warrier’ or would have survived the wrath of the coronavirus pandemic and the exponential amount of job loss people suffered other than lives lost to the germ.
Thus there is no guarantee about anything in life as we have witnessed in the past eighteen months and more.
If you live in a Tier I city, then the minimum health cover* should be INR 5 lakhs.
In case your parents do not have their health insurance in place, you may want to consider a family floater of the same amount.
However, if you are married, your ideal health insurance family floater should be INR 10 lakhs, which you should increase with top-ups with passing years.
Term life insurance –
The biggest ‘IF’ is built in the word ‘LIFE’ alone. To protect your family in the face of financial exigency resulting from any untoward incident; like disease, disability or death; it is strongly advised that you buy a term life insurance of at about 22 times of your annual compensation (as approved and recommended by IRDA for your age group).
Given that you are in your 20s, a 50 lakh term cover would not cost you more than INR 6000 per annum – a cost of less than INR 16 a day. (source online applications on policybazaar.com)
Step #2: Budget your finances:
Though it may apparently seem that living on a budget is mundane, it will actually help you live life king size by optimally utilising your disposable income the way you want to.
Wondering how to budget? Just make an excel sheet with a detailed list of the monthly inflow of income and expenditures. That will help you allocate and reallocate expenditures and/ or cut down unnecessary expenses as well.
The 50:30:20 guideline will come in handy in this exercise.
In case you feel you are someone who fails to restrict your temptation to withdraw and overspend money; you may want to look at siphoning out a certain specified amount of money from your salary account to another account via an auto-debit mandate the moment your salary gets credited every month.
This way you may cheat your mind to an ‘out of sight, out of mind’ state and help you forget the urge to may unnecessary withdrawals.
Step #3: Build an emergency fund:
As the name suggests, this fund is aimed at helping you tied over unforeseen, unplanned and uncalled for a financial crisis if and when it arises in life like the ongoing Covid-19 pandemic or any natural calamity like floods, earthquakes, etc.
These kinds of an emergency situation can result in job loss, pay cuts, death of family members, medical emergencies and more, as we have been witnessing since early 2020 as well. This makes life and works completely uncertain.
Thus it is prudent to build a contingency fund as a part of your personal financial planning for the future.
As mentioned in step #2, you can start building this fund by setting aside a specified amount of money (via auto-debit mode) in a separate bank account and soon you will find a considerable corpus built to support you in days of emergency.
Other investment vehicles used to build emergency funds are fixed deposits, recurring deposits, liquid mutual funds too depending upon your need and risk appetite.
Experts say, ideally you should have 3 to 6 months of monthly expenses as your emergency fund.
Some are also of the opinion that you should better provision for 9 months of expenses in the face of very severe emergencies like the ongoing coronavirus pandemic.
Step #4: Define your financial goals:
Just as we know that it is important to know our destination in order to choose the right paths to set sail towards it; similarly you need to know and define your financial goals for effective management of personal finance for working professionals like you.
That will help you choose the various financial tools/ vehicles you can invest in to help you achieve your goals.
Financial goals can be defined broadly into 3 categories viz. –
Short term goals
Those are likely to come up within 3 to 5 years time; like setting off your credit card bills and/ or education loans, down payment for your first car.
That has a timeline of about 7 years to maturity, like your own marriage, childbirth, etc.
Long term goals
They have a timeline of 10 years and beyond and can include, children’s education, your retirement planning, down payment for your second home, wealth creations for a family vacation to exotic locations or even upgrading your car among other financial goals and aspirations.
To embark on your journey into personal finance management with proper knowledge and make conscious decisions for your future, we urge you to take a quick course on financial planning with Koppr
This has helped youngsters like you make wise decisions around their investments from a very young age and we believe it will be a value add to you as well. We are there to help you in case of further queries.
Step #5: Choice of investment vehicles:
For long term goals:
Make equity your best friend towards wealth creation for achieving your long term goals.
Since the subject may be new to you, begin with SIPs of Systematic Investment Plans in ETF (Exchange-traded fund) schemes and/ or mutual funds with maximum equity exposure.
This involves a monthly debit of a specified amount of money on a particular date of the month for 5, 10, 15 or 20 years and more depending on your investment horizon and the time you have to see your dream mature.
Given that you are only in your 20s, time is the magic potion that you have on your side that gives the power of compounding enough time to show its magic to create phenomenal wealth for you over a period of time as most of your long terms goals defined earlier are likely to surface at least a decade and beyond from now.
This will allow your money to generate enough wealth for you while you can happily concentrate on your career development and in pursuit of other interests.
You must ideally have at least 4 SIPs on a specified date on every week of the month to reap the optimal benefits of rupee-cost averaging on your investments that happen all through the month.
Let us take a few examples here for a better understanding. Refer to the table below that shows you the power of compounding on your wealth. Say you are 23 years old today and have invested INR 5000 in an equity-based SIP for 7 years that have yielded you a corpus of INR 6,10,000 after 10 years at a modest return of 10%.
The same investment if continued for 10 years can get you a corpus of INR 10, 33,000.
However, if you keep that money into the account for 20 years without further feed, your yield increases to INR 27,96,000 without any further effort from your end.
And say if you have been patiently feeding your SIP for 20 years and kept it for 10 years more, they can build a wealth of INR 1.04 crores against an investment of only INR 12 lakhs!
Such is the magic of compounding!
SIP in Equity Mutual Fund
SIP in Equity Mutual Fund
SIP in Equity Mutual Fund
SIP in Equity Mutual Fund
Age 23 years
Age 33 years
Age 43 years
Age 53 years
Term of investment
Term to maturity
Rate of interest/ Return
Total amount deposited
Total return earned
The best part about these investments is that in case you are in need of money, you can always make partial withdrawals from the investments buying selling a bunch of units without having to liquidate/ break your investment.
SIPs have been known to help support the long term goals of youngsters like you in ways more than one.
As you grow in your professional life and your income increases, and you get your extra incentives/ bonuses, ensure that you buy more SIPs and also invest in a few fundamentally stocks/ equity shares, as they too are known to build wealth over a period of time.
You must also consider investment in ELSS (Equity Linked Savings Schemes) as they are tax-efficient U/S 80C and will help you create wealth and save tax as well.
And we all know, tax saved, is income earned! To know more about managing finances and monitoring your investments we urge you to download the Koppr app from the Playstore to gain further insights.
For short/ medium-term goals:
If you are a risk-averse person, and your investment horizon is less than 10 or 7 years, you have an array of investments options to choose from for peace of mind. Most of these debt and equity-related instruments are tax-efficient as well to ensure you save tax and thus further make money that way.
Bank FD – If you choose a bank fix deposit for a term of 5 years, you can avail of tax benefit U/S 80C.
Public Provident Fund –
This has been an all-time favourite and a must-have for all Indians as it helps create a retirement corpus with the best return in the debt market with a tax-free interest of 7.1%.You can maintain a PPF account with just INR 500 a year.The maximum annual contribution allowed is INR 1.5 lakhs. Principal invested gets a tax benefit U/S 80C too.
ELSS – It has a 3 years lock-in and maturity in 10 years. This is because this too gets you a tax break U/S 80C.
Debt mutual funds, liquid funds and bonds – Being inversely related to the stock market, they are known to yield better returns compared to bank FDs.
To learn more about personal finance for working professionals like you and to have your query resolved, download the Koppr app from the Playstore and get in touch with your personal financial planner today!
The top #4 ways to be mindful of money mistakes:
Managing personal finance for working professionals for you needs some study and interest from your side as we by now understand.
However, there are many that land up making money mistakes that can have lasting consequences of guilt of the opportunity cost lost. Let us take look at a few common money mistakes young professionals must avoid.
1) Living beyond your means –
This is the most common mistake youngsters make early in their careers with newfound financial freedom.
If you keep spending more than your earnings for long; it can make it very difficult for you to gain back financial stability.
Thus ensure you budget your expense by the 50:30:20 rule from the very beginning to live and manages expenses effectively.
2) Beware of the debt trap –
Be mindful of your spending on your credit cards or borrowing money from people to meet your flamboyant living expenses in the early years of your career. This is because there is a huge opportunity cost lost in the process.
There are people who had to take personal loans to set off their debts that ran into lakhs of rupees.
This has an adverse effect on your morale and respect as a human being and might find it extremely difficult to get back on track. Thus as described earlier, pay off your debts/ loans at the earliest.
Making purchases unscrupulously –
Youngsters are found to find a high in picking up accessories, latest mobile phones and gizmos, bikes and clothing continuously. They swear by the associated exchange programs too.
However, these are all depreciating assets that become obsolete soon. Thus be mindful and limit your purchases in these segments.
Rather you should aim at picking up real assets like stocks/bonds, gold/ gold bonds or even land if you can afford them as all of these will always increase in value.
Delusions about financial goals in life
– there are very many youngsters who live beyond their means and/or have no savings in their accounts even if they are earning a decent amount of income.
This is because they have not spent time to understand/ define their life purpose or define their life’s financial goals.
Thus planning for personal finance for working professionals like you eludes them, leaving them grappling with their finances till late in life.
Thus start today and get your personal financial planning in place with your personal financial planner from Koppr and start your journey into wealth creation and realise your financial dreams with élan!
In this world, there are rules for almost everything. Whether you are cooking some food or playing sports, everything has some rules binding it. However, whether you follow these rules or not, that is completely up to you.
While some people think that rules are limitations to someone’s ability others think rules protect them from falling apart.
Similarly, there is the rule of investing which are followed by some investors and some define their own rules.
However, in investing, especially when you are a beginner, following the thumb rules can mitigate a lot of losses and increase your chances of making money from the market.
Here in this article, you will be reading about 20 thumb rules which are beneficial for investors.
1) Bulls and Bears make the money:
While everyone is afraid of the volatility in the markets, but this volatility can earn higher returns.
If the market is going up or down at a very slow pace, then it is highly difficult to amplify the investment. The returns are lower and also the time required is higher.
However, when there is volatility in the market and bull or bear is at its top pace, you can make money out of the market. The terms bulls and bears describe how the markets are performing.
If the stock market is increasing, it is called a bull market and the economy is growing and is sound.
However, when the stock market sentiments are negative and the market falls with most stock prices decreasing, it is called a bear market. For instance, the stock market index Nifty 50 at present is roaring and at an all-time high. It has reached almost INR 15900 and this indicates that the market is in a bull phase.
If you have shares of the companies that are going up, then you are bound to make a huge profit in this bull run. However, most people invest when the market is bullish, i.e. it is rising and only a few people tend to invest when the market is falling.
Moral of the story: You need to invest when the market is volatile, irrespective of whether it is bullish or bearish. The volatile market fetches more return and a stable market.
2) Do not buy everything together:
It is the second thumb rule of investingthat you must not buy everything together.
The market is going up and down all the time. So, if you buy every at once, and at the next moment, the market may go upside down and all your investment can go into vain.
Thus, you must analyse each market individually, each asset separately, and then invest. Also, when you are buying in huge volume, there is no need to buy all at once.
You can buy the same instruments in multiple lots. This gives you the chance to wisely analyze and observe the market.
If anything goes wrong you can close your position and stop trading or investing in that instruments. However, if you have bought in volume together, and then after some time, the market turns around, it can be sudden death as well.
Moral of the story: You can invest systematically. This would not only help you beat the odds of not investing everything together but also help you with rupee cost averaging.
It is always advisable to learn before you earn, You can enroll in many financial courses on stock market, financial planning, mutual funds and more. Check them here
3) Rule of 72 of investing:
The rule of 72 is really interesting. Who doesn’t want their money to get doubled up, isn’t it? However, the number of years for doubling the amount is not easy to anticipate.
This rule of 72 however, helps in finding out the number of years your investment would take to double itself. Only with the help of the rate of interest and the number 72, you can find out.
You need to divide 72 by the rate of interest. So, if the rate of interest is 8% and you have invested Rs. 2 lakhs then it would become Rs. 4 lakhs in 9 years. Moral of the story: You can gauge the time you would need to double your entire investment portfolio (in a fixed return product) with the help of the interest rate.
This would give you a tentative value of the expected pre-tax portfolio (keeping other factors constant such as the associated risks).
4) Rule of 114 of investing:
Now as you know in how many years, your money gets doubled, aren’t you feeling the urge to know the number of years it would take to triple itself? So, you can find that out using the rule of 114.
Similar to the previous rule, here you have to divide 114 by the rate of interest.
So, given the example above, the Rs. 2 lakhs would be Rs. 6 lakhs in (114/8) years = 14.25 years or 14 years and 4 months. Moral of the story: Again, you can find out the timeframe of when your entire pre-tax investment portfolio can be tripled. However, taxes can be a significant part of your portfolio if not planned properly.
5) Rule of 144 of investing:
Similarly, you can also find out in how many years, your invested amount can be 4 times.
For this, you need to use the rule of 144 which is similar to the previous two rules.
Here you need to divide the number 144 by the rate of interest which is 8% in the example above. So, your Rs. 2 lakhs will be Rs. 8 lakhs in 18 years. Moral of the story: Similarly, the timelines for the pre-tax investment portfolio can be quadrupled can be calculated.
6) Rule of 70:
You seem to be happy seeing all your money doubling, tripling but here is the catch.
The amount may increase but the value will not be the same as the amount due to inflation after time passes.
So, it can eventually get halved as well and that can be determined by the rule of 70. Here you have to divide the number 70 by the rate of inflation. For instance, you have Rs. 20 lakhs and the current rate of inflation is 4%. So, your money will be Rs. 10 lakhs in the next 17.5 years.
Moral of the story: Inflation can really reduce the real value of your investment portfolio. So, if you need to grow your portfolio, you need to factor in inflation and then grow the portfolio to your desired returns to give you an inflation-proof return.
7) Emergency fund rule:
Life is uncertain, anything can happen within even a blink of an eye.
Even if you have a lot of investments, you may not be able to use them if they are not liquid enough.
Moreover, there are penalties for withdrawing money early from your investment instruments. However, the most important factor is, if you are using your investments in the first place to deal with emergencies, you can completely ruin your portfolio.
Obvious investments are for the financial security of the future, but for emergencies, you need to have a contingency fund. This will not only help you in smoothly handling emergencies but also help you safeguard your investments. Moral of the story: Experts suggest at least 3 months of your monthly expenses be set aside for emergency in an easily accessible fund so that it can be seamlessly accessed even by your family members.
8) Insurance planning rule:
After emergency fund, another important part of investing in insurance planning.
You may be wondering how it is within the rules of investment, then you must understand that when there is some medical crisis, or natural disaster, or anything of that sort, your investments can go for a toss if you rely on them completely.
Especially for medical emergencies, it is important to have Mediclaim policies, health insurance policies, and other insurance policies to safeguard your life, assets as well as investments.
The insurance penetration in India is very low and it is still not bought, but sold. This is where most insurance plans are also ‘mis’ sold.
However, if the story changed, and everyone ’planned’ their insurances and bought them proactively, then the entire concept of mis-selling wouldn’t even exist! Moral of the story: Insurance is your Plan B, i.e. your family’s safety net. This is why it is crucial to plan it ahead of time so that they are not in a fix in case anything happens to the primary breadwinner of the family!
9) The 4% Withdrawal rule:
For planning a financially secure future, you need to be very particular about the withdrawal rule.
Especially if you are planning for retirement, then you must follow this withdrawal rule of investing.
It says that you must not withdraw more than 4% of your retirement corpus in a year. For instance, you have accumulated Rs. 2 crores for your retirement. Now, going by the 4% rule, you should only withdraw Rs. 8 lakhs which is Rs. 66666 per month. Now, there is inflation which needs to be taken care of as well. Suppose, the inflation rate is 5%. So, in order to accommodate inflation, you can also increase the withdrawal by 5% every year.
So, in the first year, you withdraw Rs. 8 lakhs, and then in the second year you can withdraw Rs. 8.4 lakhs and so on so forth. Moral of the story: The only aspect you need to consider while withdrawing from your Retirement Corpus is to ensure that the corpus grows at a higher rate than the expected rate of inflation in order.
10) 10% retirement rule:
When you are young, you would hardly think about retirement, isn’t it?
However, if you start investing early using the 10% rule of investingfor retirement, you can save a huge corpus when you retire. Suppose you started earning right after completing your graduation at 21 years and your starting salary is say Rs 21,000. Applying the 10% rule, you can save Rs 2000 every month. This Rs. 2000 may seem a very negligible amount, but using the power of compounding, this small amount can grow like wonders. Here is a snapshot –
Calculating retirement corpus
Investment amount every month
The average rate of return
10 per cent
Tenure of investment
Total retirement corpus
With just an investment of Rs. 9.36 lakhs, you can build a retirement corpus of Rs. 1.15 crores. Moral of the story: The power of compounding is the 8th wonder of the world and the advantage of investing early manifests it to a humongous amount.
11) Rule of diversification:
One of the most important things in investment is risk mitigation and the smartest way to mitigate risk is to diversify your portfolio. Rule of diversification tells you about the correlation between the asset classes.
The correlation between the asset classes you are investing in must be low or negative.
This means, if one asset class is getting affected or going down, the other must go up or remain unaffected. For instance, when stock prices go down or there is a bear market, the gold price usually goes up. In fact, it is also considered as a hedge investment.
If you compare the two charts above, you can understand that when the stock market was a little sluggish in 2020, the gold prices were at an all-time high. Moral of the story: Each asset class reacts differently and thus you need to diversify using such assets that your risk of investment goes down.
12) Don’t buy damaged companies, but buy undervalued stocks:
A stock may be damaged which means it is undervalued but the company itself is damaged, which means the stocks are not worth buying. So, it is important to evaluate the company in the first place.
The stock prices can be anything in the market, you need to find out its real/ intrinsic value. Moral of the story: If the intrinsic value is higher than the prevailing market price of the stock, buy the stock. However, if the company is damaged, the intrinsic value cannot be higher than the market price of the stock.
13) Pay taxes wisely:
There are multiple investment instruments that can help you save your taxes. Invest in ELSS, ULIP, FDs, and many others. When you are investing, you need to check the tax implications for each investment.
For instance, the profit from investment in stocks is taxed as per capital gain tax rules. Moral of the story: Plan your investments keeping their taxes in mind, so that your real return, i.e. the post-tax income from it is high. Otherwise, your tax pay-out would wipe out a significant part of returns.
14) Make sure you do your homework:
Investing in any asset requires in-depth knowledge and analysis of the asset and the market. You can do your homework by analysing multiple resources both fundamental and technical. Moral of the story: You can also do your research by visiting the site of Koppr. Here you can get an abundance of information and data which can help you in your financial planning and analysis.
15) Book your profits:
Greed is not good for investors. If your anticipated or targeted price is achieved, then it is wise to sell the assets and book profit. Moral of the story: The urge of earning more may end up in losing your capital investment as well. Hence, you need to weigh the pros and cons well before investing.
16) Expect corrections, make the most out of it:
Corrections are part and parcel of investment and the financial markets. There cannot be a continuous rise or fall in the prices. If there is an excess rise, it will eventually fall and vice versa.
So, you cannot be worried about corrections. Rather, you must understand how to use them in your favour. For instance, if there is a correction for ABC stock price, and you hold 500 shares worth Rs. 1000 each.
You bought the shares at Rs. 700 each. So, you are already at a profit of Rs. 150000. However, after reaching Rs. 1000, it started falling. Wait, do not sell all your shares. Analyse whether it is a correction or momentary fluctuation.
If the prices decrease a little, no need to take any action. However, if the prices decrease drastically, then it is better to sell the shares and wait until the correction ends. Moral of the story: Once the price is at the lowest and again starts climbing up, you can buy the shares back. This is a very tactical investing strategy which if followed properly can be very effective!
17) Keep your ears and eyes open while investing:
The prices go up and down within a blink of an eye. You missed the update, and the price becomes different the next moment. So, it is important to keep a constant check on the market. Moral of the story: With the help of the Koppr app, you can monitor the market round the clock. You can find all news about the markets on this app.
18) Panicking leads to losses:
When you are investing in the financial markets, you need to stop being worried. If you do panic buying or selling, you would only end up in huge losses. Moral of the story: Markets will be volatile and that is the basic nature of financial markets. However, if you start panic buying or panic selling often whenever the prices go up and down, then your investment would go for a toss.
19) Flexibility is the key:
If you are rigid about your investments, then it becomes difficult to mitigate risks.
When one asset price is tumbling, or a company is continuously running in losses, you need to sell them.
If you are rigid and do not alter your portfolio, then you will only end up in massive losses. You need to be flexible enough to alter your portfolio whenever necessary. Moral of the story: Reallocation and rebalancing of portfolio is the key to profitable investment if done at the right time. You need to know your ideal asset allocation and then keep rebalancing your portfolio accordingly.
20) Listen, analyse and invest:
Finally, the most important rule of investment is to listen to everyone, then analysing each point, and then acting according to your final findings.
Suppose, your financial advisor suggested one stock, your friend suggested another, and your colleague another one. You need to evaluate all three of them, also find your promising stocks.
Then analyse them all, check whether they are rightly valued or not. Moral of the story: After thorough analysis, you need to pick the most suitable one for your portfolio. Listen to everyone, but do what you think is right and what you believe is best for you and your investment portfolio!
Rules of investing are pretty much interesting if you thoroughly read them. Following these rules are up to the investors and traders. You can choose which one to follow and which one not to.
However, these rules are for making your investments better and optimize your profits and reduce the risks.
Emergency funds as the name entail cater to sudden and unforeseen financial exigencies arising from a range of unexpected situations viz. job loss, accident, major illness, natural calamity, etc.
Thus the nature of these emergencies can be short-term or long term in nature, but the need for availability of such contingency funds is immediate when the need may arise.
An emergency fund not only helps you tide over your critical financial needs in your most difficult times; it also ensures that your investments for other long term financial goals remain undisturbed.
Such is the importance of building and/ or having a contingency fund at your disposal. But remember, an emergency fund is usually not meant to fund daily expenses of life unless emergent from unforeseen circumstances.
In this article, we will focus on all the things you need to know about emergency funds for you to plan and manage your finances prudently.
We aim to cover–
The reasons why you may require an emergency fund
Types of financial emergencies
The right amount of money to keep in your emergency fund account
How to Build an Emergency Fund?
Different instruments available to build emergency funds in India
Benefits of having an emergency fund
The reasons why you may require an emergency fund:
For all of you who have witnessed and are still experiencing the wrath of the landscape scale Covid-19 pandemic for the past eighteen months, you are sure to have witnessed the worst emergencies so far in your life, either in the form of pay-cuts, job loss, death of a family member, natural calamity, etc.
Medical emergencies, job loss and natural calamity if faced call for immediate requirement of money and here is where your emergency funds come to rescue.
You must keep in mind that your emergency fund is kept liquid in nature, such there if met with a financial crisis, you can avail of the money without delay.
Neither should withdrawal from the fund cost you an exit load or withdrawal penalty. This is the most critical feature of emergency funds that you must keep in mind when deciding on your investment vehicle to save for emergency.
Types of financial emergencies:
Emergency savings may be required to mitigate a range of financial emergencies that can be classified into –
Small/ Short-term emergencies
Big / Long-term emergencies
Small/ Short-term emergencies entail but are not limited to –
Accident of personal vehicle on the roads or breakdown at home
Unplanned and emergency family travel (inter-city) to give care to a sick parent/ elderly family member or attend a family funeral
Home/ office repair work to be undertaken post a natural calamity like floods/ very severe cyclones
Medication and/ or minor surgery required for unique illness not covered in medical insurance policies
Major robbery or theft during the journey or at home
Pet emergencies/ accidents that require professional vet care
Business slowed down due to prolonged periods of lockdown owing to a pandemic situation where payments are also held up
Big/ Long-term emergencies may include but not limited to –
Long periods post-job loss/lay-off
The medical condition of an immediate family member that requires your 24×7 attention and care
Medical condition for self that may require a sabbatical from your work
Major damage to house due to a natural catastrophe
Unforeseen and unplanned education fees for children to ensure ‘golden career opportunities are not lost
There will still be a section of people who may feel that while the concept of emergency funds is great, and is good for all others; but you do not need one just now as –
Maybe you do not need to shoulder any financial responsibilities at home at the moment
The family is financially stable as the father is still earning and has the family finance sorted
You may also think that just in case if at all, a financial emergency occurs, you will have the credit cards that you can swipe and meet your expenses and use your 45 days interest-free period to further plan balance transfer on other cards till you tide over the crisis.
Believe you in me, when crisis strikes, it is not easy to maintain such calm and composure to calculate and play with such high interest revolving credit. You might be putting too much at stake.
You might also be thinking that you are highly skilled in a niche job; demand for which is always high in the market.
That gives you a notion that in case there is still a chance of job loss, you will easily be able to find one.
In that case, I would urge you to consider the following before you choose not to invest in emergency funds.
What if the country faces a major economic downturn and/ or enters into a recession and your job is no longer in demand leading to a job loss?
What if your company gets merged or acquired by a larger company and the department you are a part of is now redundant resulting in your lay-off?
What if your parent in the home country gets paralysed or becomes immobile due to a major accident and you need to travel back as the caregiver and sole companion for your lonely parent?
Yes, sooner or later in life, everyone faces financial emergencies that need serious attention and makes emergency savings a critical part of financial planning.
To understand and get further clarity on the subject, we urge you to take a quick financial planning course from Koppr to make a conscious money decision.
What is not a financial emergency?
I would also like to highlight here some of the situations that definitely does not consist of or should never be considered as a financial emergency and you must not lay your hands on the contingency fund you have created for them.
For example –
You badly need to invest some money into your business for a deal you are looking forward to. This is because you should have had provisioned for future business opportunities from your earlier profits alone.
You or your family member wants plastic surgery to enhance your facial beauty.
Being an ardent football fan, you have got a great deal on vacation travel to watch the EURO CUP finals on 12 July 2021 and wish to avail of it.
You have been invited to a destination wedding and you decide to fly at the last minute
You have a sudden desire to change your home flooring to a complete wooden makeover
Replace your HD TV with a high end large smart TV of the latest model to offset the inability to go to movie theatres, courtesy of the pandemic.
The right amount of fund to keep in your emergency fund account
Emergencies as we saw can come in ways more than one and can range from a big one like a job loss to a small one like your family car breakdown.
In most cases, you may have noticed that misfortunes, when they strike; strike hard and in a series – so don’t be surprised if you can have a car breakdown when you don’t have a job too among other losses/ exigencies! Whatever the situation is, you will have to ensure that your living expenses are seamlessly met even when you don’t bring home an income for several months.
And, you will still have to pay your investment EMIs, loan EMIs along with credit card dues without a worry.
You will find some extreme cases as well; where some people are seen to account for their luxuries like an annual vacation as well while planning to save for emergency, while some others trim their budgets and stick to bare-bone living expenses budget to tide over the crisis times.
So to start with, make an exhaustive list of living expenses for any month and prioritise the key (must have/ need to) expenses that you must account for to seamlessly tide of the crisis period.
You would need to take a call whether to consider one or two small ‘to haves’ in the list depending on your current financial/ job status and affordability.
Though most of the financial advisors/ planners would suggest keeping aside 3 to 6 months of your living expenses in and as your emergency fund, it will be prudent to set aside and build an emergency corpus that consists of 6 to 9 months of your living expenses.
This suggestion stems from the widespread experiences we are witnessing courtesy of the Covid-19 pandemic since the beginning of 2020.
Even the Subprime Crisis during 2007 – 2008 had witnessed prolonged periods of job loss for the salaried class if you remember.
How to Build an Emergency Fund?
Just as Rome was not built in a day, your emergency fund needs time to build gradually.
You will need to set aside a certain amount of money into a separate account every month, and soon in some time, you will find a considerable corpus built.
Wondering how much money to save for emergency? Say, the modest monthly living expenses that you would like to maintain in the face of financial exigency is INR 15000 at any point in time.
So you will need a corpus of at least INR 90000 or INR 135000 if you aim to build a provision for 6 or 9 months respectively.
You can decide on the amount you want to set aside every month towards your emergency savings depending on your choice and intent – you may choose, say, for example, INR 5000 or INR 10000 a month to build your contingency corpus.
You may choose to cut down on your ancillary expenses or even small investments for a while, to build this all-important emergency fund.
Different instruments available to build emergency funds in India
Time is now to think about where to invest for emergency funds.
While deciding where to invest in emergency to build the desired corpus you must keep in mind a few things like;
The fund must help you without hassle when you need it the most and must easily convertible into cash without any delay.
While some emergencies give you a few hours and maybe a couple of days to get prepared, others can be ‘right here – right now’ kinds, so you must invest accordingly.
Thus the investment options you decide on must be highly liquid to ensure you or even your representative/ chosen family member/ friend can access the money if and as required.
The money must be easily accessible such that it gets transferred to your account preferably within the same working day.
The investment avenue should get you decent returns as well.
a) A separate savings bank account:
The easiest option is to open a separate bank account in your chosen bank and keep depositing a specified sum of money into that account through auto-debit mode.
This will ensure forced saving without missing out on a monthly deposit you committed to making to save for emergency.
Below is the list of banks offering the highest rate of interest on a savings account as of 24th Jun 2021.
Though it is otherwise discouraged, along with emergency savings in a separate bank account, it is prudent for you to keep cash in hand in lieu of at least one-month expenses.
This is because some of the emergencies do not give time for you to go to your bank to withdraw the money or any other option.
Moreover, there can be other technical glitches like the following that can be best bypassed to a certain extent if you have some cash in hand.
Failure of internet connection due to a severe storm or cyclone may not allow for digital payment/ transfer of cash
System failure at the medical facility to not allow for online payments
ATM machine does not work due to technical failure
ATM can run out of cash at times
Emergencies or hospitalisation in the middle of the night will also not allow you the scope to withdraw cash from the bank against a cheque.
Thus when considering where to invest in emergency, you must also regard keeping some cash at home.
c) Sweep-in Fixed Deposits:
You can also look at siphoning off your emergency savings into a sweep-in FD if you do not want to open and maintain a separate account exclusively to invest in emergency fund. There are two benefits to this action of yours –
Your money will earn better interest than lying in your savings account
You still have 100% liquidity on the money as you can withdraw the money if and when required to mitigate financial emergencies by withdrawing the money with your bank debit card and/ or online transaction without delay on a bank working day or even on a bank holiday.
However, it is important to remember that only single holding accounts are entitled to have sweep-in FDs.
This is definitely a good security measure to protect the interest of the primary account holder.
d) Liquid mutual funds:
If your emergency corpus runs into a few lakhs of rupees, then you may also look at keeping a part of the fund in a liquid mutual fund of repute.
This is because, generally a liquid mutual fund gives more return compared to a fixed deposit, especially when the equity market is on the downturn.
However, as an investor, you must also know that liquidating the money from a liquid fund can take up to one to three working days.
A certain mutual fund allows for ATM card facility to allow the investor to pull out up to INR 50,000 a day from a scheme, Example – Nippon India Mutual Fund has their ‘Nippon India Any Time Money Card.’
While a fixed deposit has a deposit insurance cover of INR 5,00,000 on it, there isn’t any such protection available on any liquid mutual fund investments.
Thus as an investor, it will be completely your call on choosing to invest in the various tools depending on your risk appetite and decide how to manage the emergency fund on your part.
Benefits of having an emergency fund
There are several unsung benefits of an emergency fund as listed below.
a) It gives peace of mind:
Financial stress can be detrimental to health and life as the inability to provide for basic yet serious financial needs in the face of an emergency situation can be very depressing and disrespectful for the bread earner of the family.
It has been seen to create panic in people leading to loss of sense of balance and calm too.
The existence of an emergency fund gives peace of mind and psychological power to concentrate on other areas of life as you know you know you are protected against unforeseen expenses in case they arise.
b) No need for revolving credit and/ costly loans:
If you have your emergency funds in place to fall back on in the face of the short-term or long-term financial crisis, you know you will not need to swipe your credit card or take any loans to tide over the financial crisis in life.
This is because repayment of loans and interest on credit cards only adds to your mounting financial owes instead of lessening them.
c) It protects your long term financial goals –
This is because, in case of any financial emergency, you know your emergency savings will take care of your emerging financial needs.
You will not need to break any investments planned for your future dreams and aspirations.
d) Makes you a disciplined investor –
When you get into the habit of saving money in your emergency fund; you see the results in term of building a corpus for a defined purpose on one hand and the tangible and intangible returns associated with it on the other.
This is bound to give you a sense of joy and accomplishment that will urge you to invest in bigger financial goals in life through disciplined investments.
A successful investment journey is a long trip. Knowing your goals, planning, having an investment strategy, investing in the right products, increasing your financial intelligence, seeking help from professional experts, etc., are the crucial steps to reach your final destination.
Be it, seasoned investors or beginners, constant learning is essential to stay on the right path of the financial journey.
Learning the market, finance and staying abreast with the latest financial news can add lasting value to your successful investment journey.
Various financial news apps can keep you updated with the latest market information. But, having a more comprehensive tool that can drive you towards financial wellness is the need of the hour.
If you are looking for such a tool, the Koppr app is the right one-stop solution.
Koppr app, one of the best financial news apps that deliver an update to you with the market news and gives you a comprehensive solution by helping you learn, plan your investments, invest, and track to achieve your financial goals.
If your goal is to build wealth and enjoy financial security, you need the Koppr app.
There are plenty of reasons to have the Koppr app on your smartphone. Let’s look at the reasons to have the Koppr app.
1) Excellent Learning Platform
The first step towards Investment success is investing in yourself and increasing your financial education.
If you want to avoid a lifetime of financial mediocrity, you need to invest your time and effort today to improve your financial intelligence.
Educating yourself on the fundamentals of finance helps you make a rational investment decision.
If you are a newbie to the investment world, financial literacy can hold you back from making poor financial decisions.
If you are an active investor, boosting your financial intelligence can help you act on conflict of interest in the investment advice that you receive. For your investment portfolio to grow faster, it is also essential to develop your financial intelligence.
With the Koppr app, financial learning or education is now inexpensive and easy. You can increase financial intelligence with free courses and some advanced learning courses with minimal cost.
Here are some significant learnings that you can seek on the Koppr app learning platform.
Learn Mutual Fund
Koppr app is one of the best financial planning apps that help you learn various asset classes.
You can learn about mutual funds on the Koppr platform by enrolling on various quick online courses available on the forum.
There is a free online course available to learn on mutual fund basics that take you through an introduction to mutual funds, how they work, various mutual funds and ways to invest, etc.
To advance your learning, you can enroll for paid mutual fund investment courses on the Koppr app. These courses are designed for everyone, including homemakers to beginners in investing to advanced investors.
The courses are quick, digital and nominal in cost.
If you have to build a substantial amount of wealth for your future, you need to take a certain amount of risk and invest in the stock market with higher returns.
Though you need not be an expert in the stock market to start your investment, having basic knowledge is essential to make an informed financial decision.
Knowledge is power! Knowing terminologies, how does a stock market work and how to analyse, etc. You can learn from the basics of the stock market to advanced knowledge of the stock market on the Koppr app by enrolling on various courses.
There is a free course on stock market basics, and stock market live workshops for beginners.
There are also bundled courses on the stock market for advanced investors, which can be availed at a nominal price.
These are quick to learn well-designed courses available on the Koppr app to help you make wise investment decisions.
If you have to take control of your finances, learning financial planning is crucial to achieving your goals. By planning your finances right, you can effectively manage your income and build wealth for your future.
Koppr app, a financial planning app, can help you learn how to start financial planning, identifying your financial goals, tax planning, budgeting and how important it is to invest early to grow your money.
Koppr app is one of the best financial news apps that keeps you updated on any finance topics of your interest. You can get the latest financial news today in India with just one click.
Stock market news and information can be obtained in no time as the Koppr app is tied up with more than 200 publications to provide you with real-time information and news related to the world of finance.
On the Koppr app, you can get updates through following ways:
You can get the business news, financial news and news specific to the stock market by reading the latest news published by various publishers such as Financial Express, Moneycontrol, Business Standard and Bloomberg Quint etc.
If you have the Koppr app on your smartphone, you will be updated about the market and economy on a real-time basis. Take a look at how the latest news is flashed on the Koppr app that makes it easy for you to stay updated.
Videos on Finance
You want to become a financial expert but do not know where to start? Some may like to read, but some may prefer to watch.
Now, you can become a financial expert! Koppr app, a financial news app, help you learn about investing, personal finance management, updates on the stock market, financial news and entrepreneurship, etc., through the videos available on the app.
Koppr being one of the best financial planning apps, aims to empower you to make the right financial decision by giving you access to various educational videos, market insights, the latest financial news and expert talks, etc.
Koppr app is tied up with more than 100 finance channels that allow you to watch the latest videos posted in these channels covering various topics such as financial news, international business, business news, economic, finance, and political news market analysis and research and more.
You can choose a topic of your interest and watch the video.
The learning never stops. Top investing podcasts provide insights and lessons on various finance topics to help you understand complex things more straightforwardly.
These days, podcasts have become an effective way to learn many things and boost knowledge. Investing podcasts on the Koppr app, one of the best financial planning apps provides you with a broader understanding of stock markets, economy, various risks and opportunities available for investors.
Listening to the stories of people, exploring different investing strategies and ideas will help you invest better depending on your financial situation.
On the Koppr app, you can listen to daily pre-open and post-close market podcasts and daily business news podcasts, etc., to make better financial decisions.
Snips on Finance
Quick and easy video lessons are becoming an effective way of learning these days.
You can strengthen your investment strategies and explore various opportunities available out there by watching these snips.
You can learn a financial product, methods to invest, multiple investing concepts and tips for building wealth, etc., in this quick learning tool.
Koppr app is undoubtedly the go-to financial planning app that provides you with plenty of inputs to make proper financial decisions.
If you have the Koppr app installed on your smartphone, you can take a quick look at these snips that help you understand so many complex things related to finance, stock market, mutual funds, bitcoin and gold and more in a more straightforward way in less than a minute.
Koppr app gives you access to various top financial channels for the latest financial market updates, stock market news and video contents for learning. Being one of the best financial news apps, Koppr has classified news published by various top publications and video contents of various top financial channels, etc., under different topic headers.
The topics are Banking, Automotive finance, Bonds, Budgeting and savings, Economy & government, Commodities, Estate Planning, Funding, Family finance and Futures & options.
You can search the latest news, market information, insights and video contents based on the topic of your interest.
Based on your selection of topic, the information will be displayed to you. Any information or content that you would need for your reference later can also be bookmarked.
Saved pieces of information can be accessed easily later. You can even take a quick check on trending news and information anytime on the go.
3) Powerful Investment Research Platform
Koppr app being one of the best financial planning apps, helps you acquire the proper knowledge required to make wise financial decisions.
The platform provides you with numerous resources to help you research, understand and analyse the market to make an informed choice.
Byte-sized online courses, live workshops, latest news with access to stories by 200 plus publications, video insights by top financial channels and various other resources provided by this personal finance and financial news app makes it a powerful investment research platform for investors.
4) Investment Planning Support
Koppr app is India’s best financial planning app that helps you do goal-based planning with its AI-powered planning tool. All you need to do is install the Koppr app and follow 6 step processes for your financial planning.
Here is a simple process to plan your investments on the Koppr app.
Provide your basic personal information such as your name, PAN number, date of birth and contact details.
The next step is to provide your family details which include the details of your dependents.You need to give the details of each family member (name, PAN number and date of birth) and how they are related to you. This helps in creating a comprehensive financial planning solution for you.
Provide details of your income, expenses, assets and debts etc.This helps in assessing your current financial situation. Your asset details would include details of house property, vehicles, commercial property or any other personal assets that you have.
Provide details of your existing investments such as investments in stock, mutual funds and fixed deposits etc.
You can upload the mutual fund statements and investment details.
Assess your risk profile by answering a few questions on the Koppr app. Based on your risk profile and return expectations, your investments can be planned.
Once your risk assessment is done, set your financial goals.You can include your short-term and long-term goals such as purchasing a dream home, marriage, vehicle purchase, education, vacations, debt repayment, home improvement, emergency funds and retirement planning etc.Choose your goals and add them to the planning list. Let’s say you add a dream home to your goal list; then, you need to provide details such as the approximate value of the house and when you are planning to buy it, etc.
Koppr, a financial planning app, provides you with the best investment planning support, which can be done in a few minutes. You can do your insurance planning also on the Koppr app and seek experts’ help online to plan.
5) Invest via Koppr
Koppr app gives you innumerable insights to invest right. You can view various investment options available on the Koppr app, be it for insurance, IPO, real estate and many more investment deals that can be checked and short-listed on Koppr.
Koppr app being one of the best financial planning apps provides easy access to alternate investments.
You can shortlist the investment deals offered by Koppr’s alternative investment partners depending on your financial goals and investment needs.
Koppr is also one of the best financial news apps that give you genuine news that helps you act according to the changing market conditions, changing needs, and financial goals.
It is essential to understand that a solid financial plan guides your successful financial journey.
If your plan is concrete, it will take you on the right path to achieve financial independence.
There are some crucial reasons for which it requires you to have a concrete financial plan.
Crucial reasons for financial planning
A) Rising inflation:
Increasing the inflation rate reduces your purchasing power, ultimately resulting in a diminished value of money.
Fall in the value of money can affect your future goals. Considering the inflation would remain rising, you need to plan your finances to sustain this rising inflation actively.
B) Inevitable emergencies:
Life is uncertain, and everyone has to face some kind of emergencies at some point in life that would be unavoidable and unexpected. This could be medical emergencies, job loss, pay cuts, etc., which can significantly impact your finances.
It is essential to be prepared for such emergencies. Hence, having a solid financial plan is extremely important for everyone.
Everyone wants to live a comfortable post-retirement life as they would be free from all the family responsibilities by then.
However, without proper financial planning, living a comfortable life after retirement would be difficult without a regular income.
D) Important milestone:
Be it purchasing a house, buying a vehicle or planning for children’s education, every important milestone of your life requires careful planning. Without a plan, your dream may not end up turning into reality.
Implementing your plan is equally essential as having a concrete financial plan.
To execute your financial plan, you need to have the right inputs and knowledge to make intelligent investment decisions to help you attain financial success.
Genuine financial news can be the best source that can positively affect your financial decisions. The more informed you are, the better would be your decisions. But, where do you get the correct information?
Considering the amount of information and data available on digital media, there is a potential for an overload of information explosion.
But, with Koppr, you are going to be loaded with the correct information.
You can find the latest financial news and information from excellent publications, videos on topics of your interest and easy access to pertinent information with all in one solution for your financial planning. Thus, the Koppr App is a must-have for every investor, irrespective of the type.
Right from investing beginners to advanced investors, Koppr has personal finance solutions for every investor type.
Koppr app is undoubtedly one of the best learning and financial news apps that gives you innumerable content related to the financial market, business, economy and everything, in general, to help you achieve financial security.
If you need trusted insights and you need a comprehensive solution for your personal finance, the Koppr app is the need of the hour!
For most youngsters like you in your twenties; experiencing and enjoying new-found life with friends partying, splurging on food and wine, gifts, gadgets, late nights and lifestyle is where the ‘highs’ of life lay.
And why not! There is a different level of adrenaline and dopamine rush to go for it more and more.
Life’s motto for most in your 20s is to ‘work hard and party harder’. Years go by without a care in the world as the money keeps flowing in to feed your wish-list of instant gratification.
Financial planning is generally not on the list of priorities for you.
It is only when you get to know from your sources that one or two of your bum-chums have become millionaires by the time they are in their late 20s or early 30s, that makes you derisive as the news seems to be a ridiculous surprise.
That is perhaps when the alarm rings in your mind and you start thinking as to where you went wrong when all were hanging in there together till yesterday.
How is it that few peers and kins are now successful and wealthy youngsters when you are still stuck in a rut with a job you enjoy or perhaps don’t and have not progressed much in your career or in money matters?
The good news is that it is not too late and you still have time. Suggest you change your mindset from ‘being derisive to being curious’ to learn and understand what your kins or bum-chums did differently to become money-wise successful early in life.
In this article today, we will focus our efforts to detail the 7 money practices that help youngsters become millionaires earlier in life which millionaire friends do not speak about.
1) They budget their expenses:
Most millionaires are known to live well below their actual affordability – to the extent that you might doubt their millionaire status.
There are a large number of them who live in their ancestral homes, drive their family car, shop at thrifty Kirana/ departmental stores – looking for best deals, watching out for online deals and eating out on special occasions only.
This makes sense. Doesn’t it? None of the first-generation millionaires you see today or from earlier days, have been heard to have grown rich by spending money.
They have learnt their money lessons well ahead in life and saving and investments are things they would swear by.
These habits are worked on and developed for years and they would not barter it for any amount of luring towards anything on earth.
Mistakes Millennials make:
While a millionaire saves first and then spends, youngsters like you do the opposite. They spend first and save whatever is leftover. If you too are making this mistake, know that you aren’t alone.
Most Millennials are found to push their budgets till they are broke. They exhaust their salaries by mid-month and use credit cards to see them through the remaining days.
Most are found to fall prey to revolving credit as they would have no clue on the interest charged on your cards, nor would you know your due dates!
Investment lesson learnt:
Make a monthly budget. Draw an excel sheet with a detailed list of monthly earnings and expenditures for every month.
Your monthly expenses ideally should consist of repayment of education loan, living expenses including rent, groceries, utility bills, local conveyance, medicines and miscellaneous expenses.
Ideally, your miscellaneous expenses must be restricted to a lower percentage of your living expenses, rent and loan repayment combined.
However, if it is otherwise, you need to take a hard look at how you can make adjustments to cut costs as the first step to financial planning.
For example, some millennials love to begin their workday with a Cappuccino from Starbucks that costs INR 300. With 22 working days in a month, it adds up to INR 6,600 monthly expense!
If you stick to this habit for 30 years, your opportunity cost lost will stand at INR 11.40 lakhs. Surprised? This is because just INR 500 rupees monthly investment in a systematic investment plan (SIP) for 30 years could earn you INR 11.40 lakhs return at a modest 10% compounded annual return.
Whereas you can make your favourite cappuccino at home for just about INR 7 a day!
In fact, if you are yet to get married and shoulder minimal financial responsibility at home, then you should follow the 50:30:20 rule on your take-home salary for effective money management.
Here is the breakdown for you –
50% of the money should go into loan repayment, rent, utility bills
30% into savings and investments
20% on discretionary spending as desired
2) They pay off debts aggressively
All young millionaires around you know that you pay as high as 40% interest on your credit cards in India.
No legal investment gives you this high returns on your money!
Your educational loan too does not come cheap. The interest rate hovers around 10% and 14%.
Thus they pay off their debts aggressively. This is because money saved on interest is money made.
Mistake Millennials make:
Most of you love flashing your credit and debit cards when partying with friends.
Middle of the month when your pockets run dry due to high lifestyle expenses, it is this plastic money that helps you fulfil your desires.
This leads you to live beyond your means and you like most of the youngsters get into the vicious debt trap laid by the banks.
And you keep wondering that though you are paying your ‘minimum amount due’ every month, why is the actual amount due not going down?
Maybe you are also borrowing money from your successful friends too – thus increasing your burden of debt.
All these and more eat into your disposable income which you could have fruitfully invested towards your wealth creation.
Investment lesson learnt:
Arrange to aggressively pay off your debts/ loans.
Few steps to follow –
Take a stock of your total outstanding debt in the market.
Check for the balance overdue and interest rate for each credit card
Take a stock of outstanding loans in the market like educational and personal loans
Check their interest rate and term
If required use a Debt Pay-off Calculator freely available on the internet to see by when all your debts will end.
Give the banks auto-debit mandate basis calculations on point no. 3 for clearing all possible debts at the earliest date stipulated by the calculator.
Stop using the cards for the time being. Revisit your budget vs. expense sheet to check where you can cut your expenses without majorly harming your living for the month.
As and when you receive and extra income in the form of gift money, incentives, bonus, extra income from some source, interest on the maturity of fixed deposits, etc., ensure you use the whole money to check for any outstanding debt anywhere and use it to pay it off for good and also divert some amount to create an emergency fund and other important goals.
Remember interest saved is equal to money made. This will increase your disposable income.
Also remember that outstanding credit or EMIs missed or failed to pay off debts, etc.; all add up to your bad ‘credit score’ which will act as a deterrent when/if you wish to avail of any loans, like a home loan, even years down the line.
Keep a maximum of 1 or 2 credit cards. Use only 1 of them. Keep the other away for emergencies only.
Set a reminder on your mobile phone/ desktop calendar for you to ensure you pay off the total outstanding for the month at one go on or before the due date.
Use the credit card for payments only in an emergency or when on business travel.
Use cash to make your payments most of the time. Hard cash going out of your hand has a psychological impact on making you cautious of the money spent.
This is one of the most important money lessons for any youngster like you.
3) They have done their financial planning
All ‘financially successful’ youngsters in their 20s you see around you; know their financial needs and goals to ensure effective money management.
They have done this with the help of professionals who are adept at financial planning for beginners.
Once the financial planning is done; there are enough options of investment for beginners to choose from best suited to achieve their financial dreams.
Hence efficient allocation of funds following the 50:30:20 rule can easily be achieved to cater to all needs with élan. And they can peacefully devote their time and energy to work for career development and growth.
Mistake Millennials make:
For the large number of youngsters in their 20s, financial planning seldom features in their priority list.
Realisation perhaps dawns only when they face untimely personal exigencies like death or disease of the earning parent(s) or in the face of their marriage when they suddenly realise they need to shoulder all financial responsibilities of the family going forward.
They are seen to grapple with things having lost their peace of mind.
Investment lesson learnt:
Procrastinating financial planning leaves your dreams for the future compromised and you will not live enough to regret it. To complete your financial planning today.
To plan your finances best suited to your needs, you will need to assess and consider various parameters ranging from your age, financial dreams/ responsibilities, life stage, time to maturity, investment capacity, risk appetite, etc.
Yes, we agree that financial planning for beginners can look confusing at the beginning.
Thus we urge you to take a quick financial planning course at Koppr to get empowered with the required knowledge on the subject.
In case you need further clarification, feel free to connect with our experienced team at Koppr.
Here’s a STEP by STEP process to create a financial plan for yourself
4) They started investing early towards their financial goals
Successful millennials make choices differently compared to their peers. Instead of spending mindlessly on things of little value, they choose to embark on their journey into investments for beginners early in life to become millionaires by the time they are in their 30s.
They learn about the financial planning for millennials and make equity and equity-related vehicles their best friends to invest in. This is simply because you have time on your side. And time is money.
Time has the power to compound money and make it grow exponentially in the long run.
Mistake Millennials make:
Most youngsters like you are found to either be scared to invest, remain in two minds or invest too little.
Even if you manage to overcome the unreasonable fear of the equity market and have designed a nice investment portfolio, if you do not save/ invest enough; going along with your dream to become a millionaire will remain unfulfilled for sure.
After all, ‘a penny saved is worth more than a penny earned.’ There are many high earning people around who still struggle with their money and lack even a decent bank balance.
Again there are many who have been known to have accumulated a decent amount of wealth with just good income levels.
Investment lesson learnt:
Procrastination has many perils you won’t live enough to regret. So start investing today.
Even if you begin with tiny amounts, you will be surprised by the substantial wealth you have created over a period of time.
This will any day be phenomenally greater than never to have started investment at all. Let us take an example for a better understanding.
Example: Say you wish to accumulate INR 2 crores by the time you are 60 years old; i.e. 35 years from now. You have 2 options with you.
Option 1: Starting at 25 with a modest 10% compounded annual return you will need a monthly investment of only INR 5500 to achieve your dream INR 2.11 crores wealth in your account (with a total investment of INR 23, 10,000 over 35 years).
Option 2: But if you start saving say at 30, with the same 10% compounded annual return you will need a monthly commitment of INR 9500 for 30 years to achieve the same dream amount INR 2.17 crores (with a total investment of INR 34, 20,000).
Thus the cost of waiting for just 5 years will cost you INR 9, 10,000 (39% more) to achieve the same targeted wealth!
This is an example of the magic of the power of compounding when you have time on your side. Worried about your opportunity cost lost?
Get in touch with your personal financial planner by downloading the Koppr App and start your investments today to maximise your wealth too!
Watch the video on power of compounding
5) They have secured their basic needs
Even before you commence your financial planning, you must first secure your life for your family members with health insurance and a term life insurance cover.
Your successful friends are aware that any insurance policy; whether it is on health or life, comes really cheap when you are younger and enjoy sound health.
These assets get costlier with age and deteriorating health.
Ever rising costs of medical treatment and rising uncertainties of life in terms of death, disease and disability; make a health insurance policy for self/ family and an adequate life term over on self absolute must help to ease the financial burden in the face of exigencies.
Mistake Millennials make:
Most of the youngsters in their 20s feel that you are too young to consider a health and life cover for yourselves.
In fact, you realise the need very late in life when either you see a family member/ friend suffer financially for the want of money due to the untimely death of the bread earner, or when you face financial crisis in the face of medical exigencies for yourselves.
Worse case scenarios observed today are that realisation dawns when millennials in their mid-30s have become obese and/ or developed some lifestyle a disease that makes purchases of a health and life insurance policy really expensive in your pockets.
Sometimes insurance is also denied for diseases you harbour! Have you measured your opportunity cost of waiting too long?
If you have realised the opportunity cost of not covering these basic needs, consult your financial planner today on Koppr App and get the best-suited plan for health and life insurance, without any further delay.
This would make you a responsible and respected youngster who stands tall to protect your loved ones financially in the face of health and life exigencies in future if any.
6) They use tax-savers to the maximum limit:
Young millionaires are known to be prudent enough to understand and maximise usage of tax-saving instruments to the maximum limit to optimise their returns.
They understand that tax saved is money earned.
Hence you will see that their EPF, PPF and NPS accounts are optimally fed to build their long term retirement tax-free/ efficient corpus. These investment options are also known to yield the highest interest among debt instruments.
They also optimise their 80C and 80D tax benefits with investments in Equity Linked Saving Schemes and Health Insurance plans respectively, repayment of interest on Education loans gets them to benefit u/s 80E, and interest on home loans u/s 24, among others.
Mistake Millennials make:
Youngsters in their 20s like you are known to be impatient and mostly lack interest in learning about avenues to save maximum tax to optimise returns even on debt instruments and/ or assets they can invest in.
Investment lesson learnt:
Talk to your HR and/ or your financial advisor and learn all the ways and means you can use in a financial year to save the maximum amount of tax and optimise your returns.
7) They are always in search of avenues of extra income
Your successful friends have an insatiable thirst for alternate sources of income to add to their earnings and wealth creation.
They pick up weekend consulting assignments, contractual projects, and/ or work gaining an audience in the areas of their expertise on social media by sharing knowledge/ skills. Yes, ‘Audience’ is the new currency today.
To be able to have a sizable audience on social media as an influencer by captivating people’s attention gives them the ability to generate sustainable income. This empowers them to even ‘make money while they sleep.’
Mistake Millennials make:
While most Millennials are energetic about the work they do, they may not be diligent or persevering in nature in most cases.
Most get swayed into ‘work hard-party harder mode’ – thus losing out on the opportunity or the willingness to put in the extra effort to use their knowledge and skills to generate extra income.
Investment lesson learnt:
Opportunities and scope are endless for the youngsters with the right attitude/ intent, knowledge and skillsets.
You just need to open your horizons and find out those avenues of making more money to help you fulfil your dream of becoming a millionaire too.
So what are you waiting for! Contact Koppr and start investing today.