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Just because you’re young and healthy is no reason not to plan your finances.

Your 20s and 30s are definitely prime earning years. But these are also the years when the maximum number of people splurge the most. Of course you want to spend, but remember to save asl well. remember the story of the ant and the grasshopper? The ant, which saved religiously through summer sang its way through winter. The grasshopper, which laughed at the ant’s prudent ways ended up half dead because it had no resources for the winter.

In your 20s
The choices you make and the habits you form in your twenties may impact how much financial freedom you have through the years ahead. This is the best time to start putting your money to work for you so that you can achieve your financial goals throughout your life. Developing good spending and saving habits, and learning to budget and invest during your twenties can help prevent needless debt later on.

The first step in financial planning is to identify your goals. Your short-term goals (five years or less) might include a wedding, a honeymoon, furniture or a new car. Next, think about medium-term goals, such as owning your own home and financing your kids’ college educations. Finally, list your long-term goals, such as retirement. Estimate how much money you’ll need to meet each of your goals, and determine how much you need to save each month to reach that goal within your timeframe.

Set aside money to go towards your short-term, medium-term, and long-term goals. Try not to sacrifice one for the other. In fact, compounding of earnings is so powerful that those who start saving for retirement in their 20s can amass large nest eggs with relatively little effort, as long as they invest regularly. For instance, take a 25-year-old who invests Rs 2,000 a year for eight years and never invests an additional paise after the age of 33. He will earn more by the age of 65 than a 35-year-old who invests a similar Rs 2000 a year for 32 years, even though the 35-year-old invests for four times as much time

In your 30s and 40s
Financial planning in your 30s is relatively easy. The first thing that you need to do is to start a systematic savings plan. Once this is established and becomes a routine, you are ready to move on to the investment stage of financial planning. Build a nest egg up to about twice your monthly salary before you begin investing in anything that puts your funds at risk.

By the time you're in your late 30s, you're usually settled in a career, although you'll probably change jobs a number of times before your retirement. You're likely to have a family of your own, with all the accompanying expenses.

Given the big picture of the economy, you might not be secure in your job. So, you should have an emergency fund equal to six to eight months worth of expenses as a financial safety net to protect your assets in case of an illness, disability, job loss, or other unforeseen event.

In this span of 20 years you and your partner may be well-established in your career. But over the years you may have accumulated responsibilities which require money. You might want to renovate your home, pay for your children's education, enjoy an amazing holiday or build your investment portfolio. You may also face the responsibility of having to take care of your ageing parents depend on you. Or you may simply be wondering how you can better organise your finances so you have more freedom to choose. That’s why it helps to create a goal-based financial plan.

You should regularly evaluate your progress towards achieving the medium- and long-term financial goals you set in your 20s. Make adjustments to your spending, budgeting, and saving as needed to ensure that you stay on track. There will be many demands on your income, but it's important to build your long-term investments despite these.

TO SAVE OR TO INVEST?
This is one of the concepts everyone seems to have trouble with. Often, people will tell you they are investing regularly--in a savings account. Saving is about setting aside money for use in the short term, usually less than a year. Because the money is put in a cash management account or term deposit there is usually little risk , but there is also limited growth potential. Investing is about putting away money for the medium to longer term and involves a measured degree of risk with the aim of growing your wealth. It usually involves creating a plan (investment strategy) to achieve your financial goals.

Published on: Nov 04, 2009, 3:38 PM IST
Posted by: AtMigration, Nov 04, 2009, 3:38 PM IST