Start early, stay on course

Start early, stay on course

It is really very essential to take right moves at the right time to achieve success and to fulfill our dreams.

Each one of us dreams to be wealthy, free of all financial worries. Yet, there are very few of us who actually work towards this goal. Not many people, who have accumulated sufficient wealth, started wealthy. They consistently continued to do the right things that made them rich.

Today, thanks to various opportunities thrown by growing economy, youngsters start earning very early in their life. People do not shy away from taking a loan, which is easily available on convenient terms. What is important for youth today is to manage all types of his financial needs intelligently.

Transactional Needs: Bank account is designed to satisfy the routine transactional needs of a customer. Even while doing so, one can choose to have a two-in-one account and enjoy both high returns of fixed deposits without compromising on the liquidity.

Protection Needs: An intelligent investor needs to adequately insure all major risks that can increase expenses out of proportion. It is important to adequately cover for life, health and home to avoid any financial contingencies.

  • They all started investing early. To be wealthy you don’t need to start with a huge amount but a small amount and a lot of time. If you just save Rs 5,000 a month and invest it in a financial instrument that gives you 8% return, you will end up having Rs 1 crore in 35 years. This duration gets reduced further if you invest this amount in high-yielding instruments like mutual funds or stocks. Since higher returns in MF or stocks are coupled with a higher volatility and hence investments to these instruments must not be made from funds that are needed in the short term.
  • They invested regularly even if the amount invested was small. We all have enough excuses to delay our savings. A college student thinks once he will start earning he will invest, young working person thinks that next salary hike and he will start investing and the cycle goes on. Whatever may be the excuse, but the fact is that the time is lost. Today, it is very easy to invest small amounts regularly in any financial instrument—in bank deposits through standing instructions for recurring deposits, in mutual funds through SIPs, in equity, small savings instruments through online accounts.

Asset needs: Today loans for various financial needs are easily available. It is important to understand the end purpose of the loan. While it is a smart move to create an asset like home right now by taking a loan against your future income, one needs to be careful not to borrow too much for expenditure related activities. The confidence of growing income and reliability of jobs gives much needed confidence to create assets on loan. It is recommended to take insurance cover for loan repayment to protect from unforeseen circumstances.

Manage your taxes well: Tax saving instruments like bank FD, ELSS, life and health insurances, loan, etc., can increase your effective yield significantly as such investments save tax up to 30% of amount invested. It is also critical to invest the tax saved to make these savings earn harder for you instead of using them for routine expenses.

Accumulating wealth for the youth today is nothing but a function of intelligent investment decisions and disciplined approach.

(By Anup Bagchi, Senior General Manager, ICICI Bank)