i wrote this article for some website / magazine..not sure which Reuters perhaps….

You have just crossed your 24th birthday, when you’ve gained the education and/or skills you need for the career you’ve chosen, and you’re earning money and learning how to handle it.

Ok, ok you are not in your twenties but are in your thirties and have started looking at financial planning. Fine, this article will be just as applicable to you – only that the time advantage of a 24 year old is not available to you.


Remember the importance of an early start in a One-day International cricket match? Remember the heroes? An early start ensures that the middle order batsmen can play with lesser stress and strain. Similarly there’s no time like your twenties to start putting your money to work for you so that you can achieve your financial goals throughout your life. Developing good spending, saving and investing habits, and learning to budget and invest during your twenties, can help.

You prevent needless debt, put away money for the things that are important to you, and take advantage of the power of compounding. In fact, compounding of earnings is so powerful that those who start saving for retirement in their twenties can amass large nest eggs with relatively little effort, as long as they invest regularly. Also remember retirement is not an age, it is a state of mind and a particular level of asset accumulation.

If retiring means doing what you can rather than what you must, maybe you may want to retire at 37 instead of 55. For an example of the power of compounding, take a 23-year-old who invests a paltry Rs.10,000 a month – he will accumulate about Rs. 15 crores for his retirement.

Contrast this with a difficult Rs. 51,000 for a 35 year old to accumulate the same amount.

Not bad for an early start right? And I am increasingly seeing young people starting 25 year SIPs…surely these kids will benefit by the long term compounding effect… GOALS!

The first step in planning is to identify your goals. In most financial planning exercises, this is the most difficult task to achieve for most of the people that I meet. Your short-term goals (five years or less) might include a wedding, buying furniture, a new car or a career changing higher education, doing your own business, or more lofty ones like dedicating your life to social services.

Next, think about medium-term goals, such as owning your own home and financing your kids’ college educations.

Finally, list your long-term goals, such as retirement and travel. Remember all these goals have a financial implication. All of these goals will mean some sacrifice of present consumption for a benefit in the future. You need to feel very strongly about these goals.

To use a typical MBA term, you need a personal buy-in.

This article can at best motivate you into some action- but you need to be motivated enough to pick up the phone and make that call or send an email! Estimate how much money you’ll need to meet each of your goals, and determine how much you need to invest each month to reach that goal within your time-frame. Planning is a word document, budgeting is putting the plan in excel.

When budgeting, set aside money to go towards your short-term, medium-term, and long-term goals. Try not to sacrifice one for the other. And try to prioritize them. Understand that since we all have limited means of income and too many goals to achieve, there will be conflicts. You need to resolve them.

Is your daughter’s wedding more important than your retirement goal? I do not think so. However if you do think so, so be it. Just do it!

It may be wise to invest in Savings Bank accounts, Mutual funds, etc. for your short-term goals, and equities for your medium and long-term goals. Historically, the stock market has outperformed any other type of investment over time, but it’s not for the faint of heart. Its volatility makes it a less than ideal investment for short-term funds, unless you have a very high tolerance to volatility.

Remember equity or debt is never the question – it is only how much of each. You can enter the equity market or the debt market through vehicles like Mutual funds.

As an ad for a shoe company says, “Just do it”.

It is better to implement a plan while waiting for the “best plan for the year” . With the wealth of information available on the internet, it’s never been easier to learn how to be a smart investor. You just need to know how to separate the information from the noise.

ps: I do not believe that unit linked plans should be bought by people who do not know how to reverse engineer a product and break up the components of costs.

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  1. Short term goals can also include painting a house, it can cost you a bomb. Recently painted my house ended up spending 50+K

  2. Hi subra

    I am one of the guys who is in 20 ‘s (to preceisly 23) got an oppurtunity to read your blog for the past Couple of years and able to understand the early start and still understanding the nuances of the finance

    thank you, You Played a Crucial role in helping me understand wrong Products (read Endowment , ULIPS)

    wish you a Very happy new year 2014 ahead!

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