Five Steps to Financial Security When You're Twenty Five
Five Steps to Financial Security When You're Twenty Five
We have all been 25 and sometimes wondered what we are doing wrong financially. It's difficult to balance between spending on things we need and on things we desire but do not actually need. With multiple goals, we feel lost at times.
You have to pay your student loan, build an emergency fund, save up for vacations and retirement... every spending decision counts. You ideally don't want to make poor ones. We know the problem you’re facing, and the struggle is real. Here are 5 things you're probably not doing right and believe us when we say, going back to the basics always helps:
1. You Snooze, You Lose
Having a lofty dream is perfectly fine but not having a plan to achieve it is wrong. Every great person started small and eventually got better. Our task here is to save up so that we feel financially secure. Here are some simple steps you can implement to plan better:
- You have to save a minimum of 10% of your in-hand salary (a higher percentage is always better). Invest it in a risk free instrument that you cannot redeem for at least 3 to 4 years.
- Know your fixed and variable expenses and try to minimise the variable expenses. If you have dependents, then incorporate their expenses as well.
- Use Credit in a responsible manner.
2. Every Paise Saved is a Paise Earned
Another problem you might face is overspending on things you don't really need. To deal with this, you can use the Cost per Use rule approach whenever you want to buy an expensive product. Divide the purchase price by the number of times you'd use that product. The lower this number is, the better. Over time, you will be able to establish a benchmark for what the ratio should be.
3. Don't Own It, Rent It
You don't really have to own it to enjoy it in the 21st Century. If you're making an expensive purchase, always check if renting it is possible and more cost effective. These days, you have the option to rent almost everything from clothes to cars.
4. Don't Put All Your Eggs in One Basket
Now that you have a plan and are saving up some money, your savings should also begin growing by themselves if you have to beat inflation. Where do we invest them? Judiciously diversifying your investments is key to financial success. We all have heard of fixed deposits, debt and equity mutual funds and the stock market. Each instrument has a degree of risk. When the stock market tumbles for instance, many of these will be likely to fall along with it.
Hence, we recommend that you diversify your investments with safer asset classes not particularly linked to the financial markets. Options like Invoice Discounting and investing in privately held businesses are great avenues for diversification. Of course, each comes with its own inherent risks and you should spend some time understanding the product you are investing in. A good rule to follow is, if you don’t understand it, don’t invest in it.
You can click to get in touch with an expert who'll help you know more about invoice discounting.
5. Ask Yourself If You're Being a Hustler
In today's day and age if you have a single income stream, it will be difficult to make it big. With the world becoming smarter and our needs demanding, you need to work smartly to fulfil the latter. It could be as simple as investing in dividend paying stocks or as risky as starting your own venture. You have to start somewhere because it's better to have tried and risk failure rather than not try at all and regret it for the rest of your life.
In conclusion, it is better to SNBL (Save Now Buy Later) than to BNPL (Buy Now Pay Later)!
And lastly, the most important thing is that while you're at it, don't forget to have fun! Else, in hindsight, it will all seem futile.
- Vanshika Agarwal, Mar 2023