It is never too early to start saving and investing your hard-earned money. Starting early will give you more time to create more wealth while also helping you inculcate a sense of financial discipline. Ideally, you should start saving as soon as you start earning. As per the recently conducted Aspiration Index survey, which surveyed over 1,800 salaried individuals between the age of 22-45 years across 12 Indian cities, Early Jobbers (22-27 years) start saving as early as 23. Also, 46% of Early Jobbers have already started working on their retirement.
Although Early Jobbers are perceived as spendthrifts who are not serious about money management, the Aspiration Index survey has some startling revelations about them. The Early Jobbers surveyed said they managed to save 40% of their income.
If you have also just started working and do not know how to start saving your money and invest it to create wealth, here are a few cues to follow:
Have A Budget In Place To Begin
The key to a good saving strategy is a well-planned budget. Budgeting is a process that involves breaking down your income for necessary expenses in a month or till your next salary arrives. It will also help you organise your personal finance by flagging unnecessary expenses. Use a spreadsheet, or a financial app to list out your income and necessary expenses such as rent, utility bills, grocery spends etc. The money saved after the necessary expenditures is the money you can save and invest. With an idea about how much you can save every month – which should ideally be at least 20% of your income – you should automate your savings at the start of the month to deduct the amount automatically and send it to a recurring deposit or a mutual fund SIP.
Use the Magic Of Compounding To Grow Your Money
To let your saved money grow, it is important to park your money in investment instruments at the earliest. The more time you give your investments, the bigger your money can grow. This is called compounded growth. Compounding helps your money grow at an accelerated pace as time goes. One of the best ways to achieve compounded growth of your wealth is by investing in an SIP. For example, Rs. 5000 invested via a mutual fund SIP with a returns expectation of 12% per annum gives you a corpus of Rs. 4.1 lakh in 5 years. But if you continue the same plan for 10 years, you get a corpus of Rs. 11.6 lakh, or Rs. 25.2 lakh in 15 years, or Rs. 50 lakh in 20 years.
Use Increments To Invest
While you may feel the urge to spend your first bonus/increment money on luxuries, try to control that craving and invest a part of it for better benefits. You can also use this increment to step up any of your investments and grow your wealth. You can follow the same rule for cash gifts, tax refunds, prize money etc. You can reinvest the interest earned through these investments to accelerate your wealth creation.
Pay Off Your Debts
Paying off your existing debts like a personal loan or education loan will give you more money in hand and will place in a stronger financial position. You can divert this saved money to other important investments avenues that yield greater returns and add to your wealth. It is crucial to lower your debt exposure at the beginning of your career to let your money grow.
Finally, besides the above-discussed points, take steps that help you save any additional amount of money. Understand your salary structure to know where taxes will be deducted and how much money you need to invest in tax-saving instruments to save taxes. Do buy a health insurance plan to fortify yourself against the risks of rising healthcare.
The author is CEO, BankBazaar.com