As a young investor, your entire life is in front of you. There is the adrenaline rush of being independent, making own financial decisions, and what not…
In this excitement, many young investors miss out on managing their finances. Result: Unnecessary spending, poor investment choices, credit card debt & whatnot.
We don’t want the same for you. In this post, we share with you some easy financial habits. These habits can help you start your financial journey on the right note & also help you avoid costly financial mistakes.
Habit #1: Increase your Financial Quotient:
This is the most important financial habit you can develop.
Why? Because when you learn & develop your knowledge of personal finance, you free yourself from depending on someone else for your every financial decision. You also get the ability to evaluate the money advice that you receive on TV, from your colleagues, or even your elders!
We don’t ask you to join a lengthy course or something. Just earmark some good financial websites (we hope ours make into your list) & dedicate a couple of hours every weekend reading the stuff. That’s it!
Over a few months, this investment of time will help you in ways that you could not have ever thought of. And the next time someone in your office asks you for financial advice, you know that you’ve come a long way, isn’t it?
Habit #2: Start early:
The single biggest financial regret most people have is that they should have started early. To start early is easy because you don’t have the financial responsibilities that come later on in life.
If you start early, you allow the power of compounding (8th wonder of the world – remember the quote!) to work in your favor. And you allow yourself an opportunity to create long-term wealth.
But all that is possible, only if you resist the temporary “high” of splurging. It’s not easy, and that’s why we have our next habit for you.
Habit #3: Get money out of your bank account at the start of the month:
The most common problem for young investors is that they don’t know where all the money went by the end of the month. To resolve this problem, follow this simple formula: INCOME – SAVING = EXPENSE.
The best way to do this is to set up a Systematic Investment Plan (SIP) in 2-3 good mutual fund schemes. Let the investment happen in the first week of the month itself.
This will ensure that without your conscious action, money gets invested from your account—the less the balance in the account, the less the temptation to splurge on unnecessary things.
Habit #4: Make a splurge fund:
Habit #5: Don’t remain stuck to “old” & “safe” investments:
You have every right to enjoy the good things in life. However, this, unfortunately, happens at the cost of critical financial goals.
A better approach is to make a splurge Fund. If you see an ad for a next-gen iPhone, don’t leap & buy it right away. Give it a cooling period of 6 months. Start investing, say 10K, in a liquid fund each month for the next 6 months.
This will help in the following ways:
- Resist the impulse, which can often lead to bad decisions.
- Does not make you stop/cancel investments for critical financial goals.
- Get a feeling of satisfaction & achievement when buying that iPhone, instead of guilt.
- Save yourself from expensive personal loan/credit card debt.
Habit #6: Practise some form of meditation:
As a first-time investor, you reach out to your dad or elders in the family for investment advice. A lot of times, the advice does not fit the times we live in.
This is because the financial landscape & challenges have changed so drastically over the decades. To effectively meet (& beat) these challenges, you need to do the following:
- Take equity exposure to create long term wealth
- Diversify your investments to reduce risk
- Select low cost & transparent products like mutual funds and NPS
Remember: The so-called safe investments like insurance plans, NSC, Post Office products are actually “risky” as they don’t protect you from inflation. Instead, learn about equity & have a proper asset allocation.
OK, rest assured that we’ve not lost our brains on this one. Most of the investing mistakes are a result of impulsive behavior. When you are faced with the constant barrage of advertisements, this behavior can lead to:
- spending money on unnecessary things.
- Not letting go of poor-performing investments
- make you quit your savings plan when markets tank.
So, spend some time learning any meditation or mindfulness-based practice. The next time you face a craving to spend on that next-gen iPhone, you will be able to better manage your feelings & emotions & not get carried away.
The initial few years of your career are a “make or break” time for your financial life. Try to make fair use of these years with a good saving corpus & save yourself from big mistakes. This will help you set a firm foundation for a smooth financial life ahead.