National Youth Day 2022: Jack Canfield, the co-author of the best-seller Chicken Soup for the Soul series, has said, ‘Your habits will determine your future.’ It is habits gained at an early age that are the cause of wealth, happiness, stress, relationships, and, of course, health. Habits acquired at a young age are difficult to shrug off.
Unfortunately, in India, we are not taught prudent financial habits as part of our education curriculum, the youth of our country are left to fend for themselves. Most young people, even those with good educational qualifications earning high salaries, end up making rookie mistakes when it comes to building wealth.
Accumulating wealth is not easy, but at the same time, it’s not too difficult. It involves a few sacrifices and some smart planning. Let’s take a stepwise look at how the youth can plan for their financial freedom.
Set Life Goals
Every time you leave your house, you have a goal of where you have to reach. Similarly, when you start your financial journey, you need to have a goal of where you want to reach.
Define financial freedom for yourself in specifics. Flag the smaller goals you need to score before reaching achieving financial freedom. Remember to provide for all expenditures and take insurance covers for your liabilities, so that the burden on payment does not fall on the near and dear ones.
Have a timeline for each goal along with the fund requirement for achieving it, keeping inflation in mind.
Prepare a Budget
To achieve each goal, we now have an idea of the requirement of funds for which we will have to provide. But in order to do so, we need to get a fix of our earnings and expenses.
Saving before spending should be the motto. One can take the benefit of automatic saving by allocating a part of the salary to a saving instrument of your choice. This way the net salary after saving will be available for expenses. Preparing a budget and sticking to it is an important first step towards achieving your financial goals.
In this age of digitalization, one does not get the feel of money leaving your hand the way one used to get earlier while exchanging money for goods. More often than not, one ends up overshooting their budget.
It is important to draw a ‘Laxman Rekha when it comes to spending and never, repeat never, jump over this spending line and borrow money to meet short term needs. If at all one has to use a credit card, ensure that it is paid on time and in full.
One should learn to live well below their means with their goals in front of them. Discipline in spending is an important part of meeting financial goals.
Know where your investments are going
Saving money is good, but saving in low interest-bearing instruments that barely beat inflation is wasting most of the sacrifices made in saving. There was a time when insurance products were sold in the country as saving products. Though the general population is now aware of the difference, they still end up saving in instruments without any planning or pegging it to a goal. The right financial instrument needs to be selected to meet a financial goal and for that, one needs to either educate themselves or take the help of a financial advisor.
Starting at a young age has its benefit, however small the saving may be. Compounding wealth needs time on its side apart from decent returns. As a youth one has time on their side, the only decision they need to take is selecting an instrument that generates good and steady returns.
Wealth creation is like bringing up a child. It requires patience, proper guidance, attention, intellectual inputs, proper nurturing, and sacrifices. But the end result is something that you will be proud of and one that can help you lead a comfortable life.
(By Vikas Singhania, CEO, TradeSmart. Views expressed are personal)