Studies show that 70% of people make financial mistakes before they turn 30. Turning 30 is a big milestone and before you reach there, you need to stop making the money mistakes you made in your 20s. In this article, we tell you everything you need to know about money before you hit 30. This is the perfect read if you are in your early 20s, late 20s or even if you are already 30 and find yourself struggling with basic money management.
The following are the 15 valuable tips on money management:
1. It is smarter to automate your savings: When you are young, there is always this temptation to splurge. To avoid overspending, start automating money transfers from your salary account to your savings account before you hit 30. This is a good habit to cultivate and it is easier to make this a habit when you are in your 20’s. Decide the amount of money you want to save every month and set up auto debit instructions. If you make automation your friend, saving money will be much easier and this way, when the money is already in another account, you will not be tempted to spend it.
2. Apply for a credit card, use it wisely: A credit card can be a boon or a bane. It all depends on how you use it. If you pay your bills on time, even if it is the minimum balance, and also have a good credit utilization ratio, it will help you build a good credit score. Having a good credit score before you turn 30, will make you eligible to avail all types of loans, including personal loans, car loans, home loans, etc. So apply for a credit card and use it wisely.
3. Always try to create assets and have good debt: Not all debt is bad. There is good debt and then there is bad debt. For example, you will have bad debt if you take a loan to buy a car because the value of the car will only depreciate with time. On the other hand, if you take a loan for buying a home, it will only pay off in the long run because it will help you own an appreciating asset. The value of your home will only increase over time and you will only get more returns when you sell it.
4. Know what your rent money is worth: If you are renting, the money you pay each month, is only going down the drain. I know! Buying a home is not easy but it is also not as difficult as it sounds. There are many banks and financiers who offer home loans at affordable rates, so instead of paying rent, you can pay home loan EMIs. For example, if you are paying a rent of Rs.30,000 per month, why not pay a home loan EMI of Rs.40,000 per month? It is ideal to apply for a home loan if you have some money saved up for down payment. This way, you are creating an asset, gaining tax benefit and also building a good credit score.
5. Ask for that pay hike: Don't be shy to ask your employer for a raise. Learn how to negotiate because even a small increase in your income can make a significant difference in the long run.
6. Reward yourself for living by a budget: Let's be honest, setting a budget is easy but living by it is not an easy task. It is always tempting to go overboard with your credit card, take that cab ride instead of public transportation or splurge by eating out or ordering food online. The trick here is to motivate yourself to stick to your budget by giving yourself a reward. So, at the end of each month, if you have lived by your budget, give yourself a small treat. It can be anything small and need not be monetary. For example, you can reward yourself with a no-cooking day and watch a movie at home, take a long hot shower, or indulge in a home-spa treatment.
7. Insure yourself against risks: If you fall ill and become hospitalised, you do not have to pay for it, your health insurance will. It is also very important to get yourself a good life insurance policy and the best time to do this is as early as possible because the younger you are the lesser the premium.
8. You must know that inflation will eat up your savings: Do not ever keep a major chunk of your savings in a savings bank account only. The money will only lose its value with time, thanks to inflation. Beat inflation by investing in appreciating assets and better performing investments. Learn how to manage inflation and protect your purchasing power.
9. Compound interest can make you rich: Compound interest can be a very valuable asset and it can help you gain more out of the investments you make. For example, if you earn 10% on Rs.100, you will get Rs.110. Now the same 10% on Rs.110, will give you 1% more because of the accrued interest that comes with compound interest.
10. Starting saving, start investing, start before your 30: Before you turn 30, have a set of financial goals and start working towards achieving it. The first aim here is to create a savings pool, after which start making investments. Start a Systematic Investment Plan (SIP), invest in a recurring deposit or put aside your savings in a fixed deposit.
11. Don't forget to create an emergency fund: It is always wise to set aside a certain sum of money each month for any emergency expenses. This is apart from your regular savings. Life is unpredictable and you never know when unexpected expenses may crop up. Always have enough money to keep you going at least for 6 months in case you lose your job for example.
12. Why not cut down on your electricity bills? Did you know that your utility bills can literally eat into your savings? Yes. And electricity bills are usually what costs you the most when compared to other utilities. Be smart and save money on your utility bills. Switch off the lights if you are not in the room, use energy savings bulbs, switch off that AC and try to keep the lights and fans on only in the room you're sitting in.
13. Cut down your grocery bills by half: Yes, this is possible. It is one of the expenses that you have complete control over. Cut down on pricey packaged products, cook from scratch and buy fresh, seasonal produce from the local market. Avoid spending money on expensive coffee, water and buy only things that you need. It helps if you make a grocery list and tally up prices while shopping to see if they fall within your budget.
14. You should know that the value of your investments can decline: If you think that you can sit back and relax after making a few investments, your wrong. Remember the market conditions can alter the way your investment is performing and you will not get the return you were expecting. So, rebalance your portfolio by pulling out from some investments and reinvesting in better paying assets.
15. Have a diverse investment portfolio: You need to balance your investment portfolio by investing in both low-risk and high-risk investments. An ideal balance is a ratio of around 60 to 40, which means you should invest 40% of your savings in high risk investments such as shares or mutual funds, etc, and 60% in low risk investments.
The bottom line
If you take care of your money when you are young, it will take care of you when you are old. So, save it, nourish it, invest it and, reap lifelong returns. More can be found in www.bankbazaar.com
This article has been produced by TNM Marquee in association with BankBazaar.