Money management commandments for those in their 20s

Updated: Wednesday, March 26, 2014, 16:06 [IST]

Indulging in sound money management from initial years plays a crucial role in determining the long-term financial standing of the concern. So, in your 20s when you draw your first few salaries your right course of action will go a long way in meeting and preparing you for your future financial needs as well as savings.

Build and enhance financial intelligence: In the early years when after completing your studies you land in a job and begin to earn first few bucks, you may or not be versed with few of the basics that governs the financial world. The time is hence right to build and gradually increase your financial intelligence and acumen as its a must and you cannot get away from it if you intend to manage your finances judicially.

Pay-off any financial liability through your own earnings: In case you had opted for some education loan for completing your studies, experts suggest it is best to clear such a liability through your own pocket. And, the earlier you get away with such a liability, the better you will be in a position to plan your future finances well. And not to forget, all the interest amount paid in lieu of the education loan is is eligible for tax benefit under section 80E.

Plan and monitor earnings as well as expenses: With the right knowledge in hand and guided by either your parents or experts in the field, you can then chalk out a financial plan for yourself depending on your income flow. Needless to say, accountability of the expenses is also a must exercise as it will help you know the areas where you spend majorly and hence can curtail your spending in that area.

Open RD account for regular saving: When your income flow is small, you can begin to accumulate corpus for yourself by indulging in regular savings. The avenues available are recurring deposits or RD with the bank that can be opened with an amount as small as Rs. 100 and for a tenure as long as 12 years depending on the bank with which the RD is opened. So, a regular saving and a return anyway between 7.75% to 8.50% that varies from bank to bank and also on the tenure, you can succeed in accumulating a substantial corpus. Also, as your risk appetite during the early years is high, you can also put a portion of your funds in equities or other liquid funds but not without any knowledge of such instruments.

Build a contingency or emergency fund: In early 20s, when stability of an individual is at question due to the highly aggressive stand then, it is best to start building a contingency fund pool of an amount not less than six month living expenses. The same shall come handy in case of an unanticipated job loss or for some other exigency.

Buy a term cover early: It can be the case that you are not the sole bread earner for your family at this point in time. But certainly, in the course your income can form the significant portion of your total family earnings. So, it is when the insurance cover to protect your family against any financial loss in case of some unfortunate event comes into play. And, not to forget the purchase of such a cover plan at an early age attracts low premium.

To plan for short term and long term financial needs ensure financial discipline: In our youth when we are attracted to innumerable offerings in the market, we should plan and accumulate for each of these products. Any purchase in haste using credit facility can trap you in debt inadvertently. For your long term financial needs and more particularly for your retirement, you can as early as possible begin to keep 10% of your cash inflow aside in safe and assured return generating instruments such as PPF or EPF.

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