Financial planning depends on several factors and varies from person to person. It depends on an individual’s income, expenditure, financial liabilities, lifestyle, motivation for self-development and income growth, and varied financial goals. While some want to earn more money to live a life of abundance, others want to retire early and save for the future.
But, what if we say that instead of being invested in securing a future, you can bring the future to the present? It’s possible only if you start financial planning early on in life.
Motivation for Income Growth: Early Financial Planning
The first rule of income growth for living a life of abundance and securing your future is to start financial planning early. Be it investment or saving, a job search driven by better income prospects and employee benefits or climbing the stairs of corporate success in the current job, there’s no alternative to starting early.
However, when you start as a salaried employee in your early twenties with a new job, probably in a new city, your expenses may go out of control. With a loaded purse for the first time in your life, the chances are high that you might get carried away! Of course, nothing compares with the freedom of spending your money in any way you deem fit, but you need to draw a map and manage your finances in time.
Five Financial Planning Tips in Your Early 20’s for Income Growth
Saving is a form of income growth. A penny saved is always a penny earned! To control your expenses, you must chalk out a monthly budget and try your best to stick to it. Avoid impulse shopping on weekend visits to the mall. Always have a shopping list and a plan; prioritise necessities over luxuries while making a shopping budget.
Monthly expenses can’t function like clockwork every time. So, take irregular/ occasional/ miscellaneous expenditures into account.
You must have a clear financial goal. Start investing early, right from your first job. Income growth or financial success does not depend only on hard work; it’s about smart financial management. There are several helpful investment schemes for young adults, namely
- Post Office savings schemes – low-risk savings schemes with competitive interest rates
- PPF of Public Provident Fund – a long-term retirement savings scheme by the central government; current interest rate is 7.6%
- Liquid Funds – short-term avenues like bonds, government securities and treasury bills.
- SIPs (Systematic Investment Plans)- equity fund investment schemes with superior return generating potential
- Debt Funds – when financial body borrows from you and pays you interest in return; a low-risk investment
- Life Insurance – investing in your 20’s means you get greater coverage at a lower premium on life insurance
Other long-term investment options include shares, stocks and mutual funds. Choose the investment plan that works best for your income and financial goals. Time management is an integral part of financial planning. Choose a plan that gives you the expected return on the money you can spare on investment at the most desirable time of maturity. However, always remember the golden rule of investment — never diversify your portfolio to minimise risk.
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To live a life of abundance even after retirement, you must invest in a retirement plan right from your first job. Time management plays a significant role in decent returns on the retirement plan. The earlier you start contributing, the more time you get for compound interest to work in your favour. So, if a 25-year-old contributes a specific amount in a pension plan every year for ten consecutive years and stops, they will get a better return at 65 than a 35 year old contributing more money for a more extended period.
Planning your career well is directly related to planning your finances. Your first job after finishing formal education may or may not match your monetary expectations. Learn to upgrade your skills and keep looking for better opportunities. Making the right move at the right time in your career is essential for success. Customise your job searches based on the highest packages offered with your given skillset before quitting a job.
Make sure not to accept a job offer with a lower CTC than your current job, as that leaves you in no shot at income growth through salary negotiation. The earlier you plan these moves, the better for your future, as your resume will show diverse job experience early in your career. However, do not be too frequent in quitting a job as that might reflect poorly.
Save for Emergency
A job change is a must for self-development and better career prospects. But going for a change always involves risk. To cover yourself against such emergencies, always keep a portion of your income aside as an emergency fund. Savings can buy you time to find a better job opportunity or establish yourself in an alternative career option.
So always try to keep three to six months of expenses aside as an emergency fund. This will keep you afloat in case you lose a job or face an untoward financial emergency like unavoidable medical expenses.
Lastly, don’t be penny-wise and pound-foolish with your finances. Income growth does not call for unnecessary expense growth. Instead, spend wisely and save or invest the surplus income for the time of need. Earning more money is not enough to live a life of abundance if you do not plan your finances early in life.