Investing at 25 years
Keeping aside a portion of your salary when you start earning, possibly in your early or mid-twenties, is a sure-shot way to secure your financial future. It is all about spending less than your earnings and investing the difference.
Investment habits, when inculcated early, can reward you with a stress-free financial life.
You are fresh out of college with your first job (or paid internship). Tasting financial independence for the first time can be overwhelming. The salary will certainly be more than the pocket money or stipend you earned until then. Suddenly, there is a lot of money in hand. But then, there are also expenses for which you cannot rely on your parents anymore.
Juggling financial freedom and responsibilities will not come naturally to most people. Not to mention that the urge to spend on impulses and finer things will be more in the 20s.
Money management is an acquired skill and the earlier you start the better you will get. This is why, starting to save in your 20s, no matter how small, will leave you with a wider investment horizon. Retirement might seem ridiculously distant at this point. This means you will have more time to accrue money toward your golden years (assuming you plan to retire at 60).
Typical Financial Plan
(Figures are Indicative and will depend on Income, Saving Levels & Initial Inheritance)
| Financial Goal | Investment Amount | Investment Type | INVESTMENT TENURE |
|---|---|---|---|
| Emergency Fund | 20000/month | Liquid NCD (AA) @7% | 6 Months |
| Life Cover | 2000/month | Protection Plan | 10 years (cover changes after 10yrs) |
| Home Loan Downpayment | 7000/month +5% annual Increase | Equity Mutual Funds (MF) | 10-15 years |
| Annual Vacation | 3000/month | Equity MF | 5 years |
| Children Education | 3000/month + 5% annual increase | Equity MF+Guaranteed Income Scheme | 20+10 years (depending on kids age) |
| Retirement | 7000/month in Equity MF + 5% annual increase | Equity MF + ELSS + PF | 20 to 35 years |
Savings Asset Allocation
As a Percent of Overall Savings
-
Life Cover
% 7
-
HomeLoan DP
% 23
-
Life Style
% 10
-
Children Education
% 10
-
Retirement
% 50
- Life Cover % 7
- HomeLoan DP % 23
- Life Style % 10
- Children Education % 10
- Retirement % 50
Automate The Investments
One of the key benefits of automating investments is that it simplifies the process. The most effective way to automate investments is to start a Systematic Investment Plan (SIP) in a Mutual Fund.
SIP allows investors to invest a specific amount of money every month and purchase units of a Mutual Fund on a specific date every month. One can start a monthly SIP with amounts as low as Rs. 500 to start growing their wealth. Even small monthly SIP can help young investors generate a substantial corpus over time.
The below table shows how SIP can help in wealth creation for different monthly investments and investment periods assuming average annual returns of 12% from the investment:
Growth of SIP Investments
Assuming Returns of 12% p.a.
| Monthly SIP Amount | Invest for 10 years | Invest for 20 years | Invest for 30 years |
|---|---|---|---|
| Rs.1,000 | Rs. 2.32 lakh | Rs. 9.99 lakh | Rs. 35.29 lakh |
| Rs. 5,000 | Rs. 11.61 lakh | Rs. 49.95 lakh | Rs. 1.76 crore |
| Rs. 10,000 | Rs. 23.20 lakh | Rs. 99.90 lakh | Rs. 3.53 crore |
| Rs. 25,000 | Rs. 58.08 lakh | Rs. 2.50 crore | Rs. 8.82 crore |
| Rs. 40,000 | Rs. 92.93 lakh | Rs. 3.99 crore | Rs. 14.12 crore |
Disclaimer
** The information contained herein is for educational purposes only and should not be construed as financial, legal or tax advice. Circumstances may change over time so it may be appropriate to evaluate strategy with the assistance of a financial professional. SEBI and other applicable laws and regulations are complex and subject to change. Laws of a particular state or central laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of the information provided. Niel & Ray does not have information related to and does not review or verify particular financial or tax situations, and is not liable for use of, or any position taken in reliance on, such information. Investing involves risk, including the possible loss of principal and fluctuation of value.