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Once you cross that 20-something age, you are finally out in the real world. So, how will that transformation from the whirlwind lifestyle to the real world impact you financially? Let's face it: once you get a job and settle down, you will probably want to buy your dream home or car. While these are long-term investments, neglecting the most impactful financial lessons would hurt your finances.
That's why this post gives a comprehensive narrative on the top financial lessons every salaried millennial should know before they enter their 30s.
Does a monthly budget sound restrictive? Having a monthly budget is one of the most important financial lessons. Keeping track of your income and expenses helps you understand where the money goes. With a monthly budget, you don't have to try remembering those unnecessary cash leaks that left you broken financially. Budgeting ensures you pay your monthly payments for investments and clear debts accordingly.
Thus, following a strict budget helps you save for the long term. From preventing you from overspending to reducing impulsive purchases, it helps you take control of your money.
The next financial lesson is to build credit wisely. Having a poor CIBIL score may be financially devastating. Here's what your credit score indicates:
So, the next time you apply for a loan with a credit score below 550, your lender may reject the application or increase the interest. Lenders appreciate applicants who have higher credit rates. The same applies to a credit card application. A poor score makes your application look risky. Lenders think you may not be suitable for paying monthly debts. As a result, they either reject your application or increase the interest rate.
So, your credit score drastically impacts your ability to get loan or credit card approvals. So, in your 20s, you must build a decent CIBIL score to improve your chances of getting future loans.
A common financial mistake most individuals in their 20s make is delaying investments. That happens because some people believe they have ample time to invest. However, the right time never comes. And once you hit the 30s, you are busier planning for your family's future.
So, another financial lesson is to enroll in EPF to save for your retirement. You can also consider mutual funds. Start with a small amount of Rs. 500 or more and watch how your money grows with time.
Investing for the long term is a smart financial lesson that you need to learn in your 20s. Putting money into mutual funds, stocks, and other investments might sound daunting. However, you can comprehend the real benefits once you see how your money grows with time; kudos to compound interest.
Investing a few thousand every year may grow into hundreds by the time you retire. And the earlier you start, the better the rewards you get during retirement.
You can also buy gold, as it's considered a great asset. Buying gold isn't just a mere investment in a land like India. Instead, it's also a cultural ritual deeply rooted in history. So, adding gold to your portfolio denotes sentimental value and improves your financial life.
It also holds significant value in Indian weddings. So, by the time you hit your 30s, you should have at least one or two gold assets. Notably, gold has been trusted for its value and used for hedging against inflation in India for centuries.
Do you tend to become impulsive when splurging on big purchases like electronics or clothing? Your next financial lesson is to control impulsive purchases. Learning to control this type of spending is crucial, and you should understand it before you reach your 30s.
Instead of falling prey to impulsive buys, you can increase the amount you keep in your emergency fund each month.
Managing unexpected expenses might be a big financial headache. You need a cash backup, whether it's an urgent hospitalisation expense, an emergency repair, or a sudden wedding invitation. That's why having an emergency fund is a significant concern. It is best recommended to keep aside a minimum of your six months' salary as the "rainy day fund."
While it may sound expensive, it eliminates massive debts with higher interest rates during unexpected scenarios. Besides, you don't have to desperately borrow small amounts of cash from neighbours, friends, or relatives. You also don't need to approach lenders for instant loans or overuse your credit card.
Managing money isn't something you have been taught in school or at home. While schools in India are gradually implementing personal finance management, you must learn it in your own style. Learning money management skills is one of the most crucial financial tips for adults. These skills are your life lessons because they help you determine how to secure your finances effectively.
Are you unsure about the technical concepts? You may acquire knowledge from books or take online courses to get guided support from advisors. You should understand the ins and outs of investing, saving, loans, credits, and more. Remember, a little effort from your end can prevent personal finance mistakes like unnecessary debts, not making investments, failing to plan taxes, and more.
Another financial lesson is to buy a life insurance policy. Anyone who has a family to support needs a life insurance policy. Besides being a crucial financial lesson, buying a term life policy is a significant consideration to protect your family in case of your unfortunate demise.
Buying life insurance in your 20s can give you better financial rewards. These policies are more inexpensive when you are younger. A healthy individual in their 25 will probably get better premium rates from insurance companies than those in their 30s.
Buying a health insurance plan is essential if you are the family's only breadwinner. With insurance policies, you can effectively reduce medical costs and get quality medical care from top-notch hospitals or diagnostic centres.
Term insurance assures you that even if something happens to you, your family will be financially secure after your unfortunate death.
It does not matter whether you are a single individual or have children. If you are single, you can still get yourself insured with a health insurance plan. Later on, you may increase the coverage level when you settle down and have a family of your own.
So, the bottom line is that life may take a U-turn at any time. No matter how unpredictable life is, getting yourself insured with an insurance plan at an early age offers financial stability in the future.
Just because you are in your 20s does not mean you cannot plan for retirement. A retirement plan makes you financially independent even after permanently resigning from your work life.
For this, you need to comprehend your expenses after you retire. After establishing a proper plan, you need to calculate a retirement corpus. The corpus should generate your annual income to cover your finances after retirement.
For this, you need to target a retirement corpus of at least 25 to 30 times the predicted expenses. The best step is to build wealth in the right ways by investing in real estate, bonds, equity, etc. You can also think of a passive source of income after you bid farewell to your work life. You may find incredible opportunities in the gig economy or pursue your hobby in online tutoring.
If you don't get serious about financial planning before your 30s, you may have to deal with financial stress in the long run. So, it's high time to develop a plan based on the above important financial lessons.
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