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Monday, July 16, 2018

How to turn into an early investor: Saving tips for a 20-year-old

The earlier you start investing the better it is for you. In India, we have all education costs covered by parents, so a large part of you early incomes can be channelized into savings. This is how to do it

Written by Sandip Sen | New Delhi | Updated: September 12, 2017 2:42:36 pm
Investment, risk appetite, planning savings, savings, business news, In India, the young as students are looked after with all expenses paid by the parents till their education is complete. (Representational image)

Investing at an early age has few challenges in India. In the US children must start working from school to meet their own expenses. They may have to mow the lawn or wash dishes, baby sit or carry out errands to earn their pocket money. Later after school, they must avail student loans to complete their higher education. These loans are long term and must be paid back after they start earning. Not so in India.

In India, the young as students are looked after with all expenses paid by the parents till their education is complete. Even marriage expenses are borne by the parents. And at most times the children get support off and on from well off parents well after they themselves start earning. So, costs are lower for the Indian adolescent and the opportunity to save is higher. Thus, the savings and investment pattern in India for the young adult is and should be different from what it is for the western teenager. So, let us see what is the best strategy to adopt for a 15 – 22-year-old Indian.

Auto save from receivables – stash cash

This is the first rule of savings what ever be the age group of the investor. Always have two accounts linked to one another. One in which you have incomes deposited. The second in which you stash away part of the income. Fix your comfortable stash cash percentage even if it is low at 5%. For the average Indian, the stash cash amount should be 10% and if you belong to the very rich it could be as high as 15% to 20%. Instruct your Bank to automatically transfer your stash cash in your second account, the moment your regular incomes come in at a date. If it is your pocket money that you get in cash ensure that it first gets into your Bank account before you spend it.

This is the time to take risk- so learn how to do it right

Between the age of 15-22 your risk appetite is high and your responsibilities are minimal. This is the time to learn to take risks. This is the time to make mistakes. This is the time to understand how money works and make mistakes. Even if you make mistakes and lose money you learn the ropes. Remember time is on your side and eventually you will win if you are bold. Set your targets high.

The retirement age for an average Indian is around 60. So you have a forty to fifty year period of working life ahead of you. Enough time to recover from any mistakes you make in the early years. This is when you will slog and stash away every day to retire happily ever after. But remember if you can save your retirement money in twenty or thirty years, you win those years when you need not work but can follow your passion and do what your heart says at that point of time.

Mix your investments boldly when young

Before you start investing read up a few books and know how to make a quarterly profit and loss statement. Keep it simple to begin with – three of four heads maintained according to the date of investment and exit date. Amount invested, amount sold, profits or losses on investment should be recorded for every investment made.

Remember that you can invest 50% to 80% of your income in equity depending on your propensity to take risks (Risk Appetite). The balance can be put equally in two halves in mutual funds and fixed deposits. The idea to invest in equity is great, but you must consult your elders or some knowledgeable investor on how to invest in equities. Else keep watching this space where we shall give you tips to know the basics of equity investment.

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