Starting your investing journey in your early twenties is always fruitful. But the idea of saving or investing is often the least of our priorities. With newly found financial independence, we tend to spend more than we can afford and so often this results in negligible or no savings or no investment at all. It’s only in the late 1920s or early 1930s that you realize you’ve lost a few precious years. So, without wasting any more time, here are the five most important things to know when starting your personal finance journey.
1. No get-rich-quick scheme works
When you want to get rich quick, you tend to fall for marketing gimmicks or policies that may not work for you. Always keep in mind that being patient and disciplined is always rewarding in the long run when it comes to investments
2. Be aware of your financial situation
When people start their personal finance journey, they tend to fall into the debt trap. The joy of earning and spending and the availability of cash on hand almost always encourages taking credit cards and maxing them out or falling into the trap of a home loan or personal loan, right from the start. . To avoid this, analyze your spending habits, set monthly budgets, and then decide which expenses are necessary versus which can be avoided. If there is additional income, channel it first towards the end of your unpaid dues.
3. Don’t rush into buying insurance policies
Insurance is not an investment; it is a risk protection product that you need in case of financial problems. So do not buy bundled insurance products as they are entirely different financial products from investment and they serve a different purpose. First, identify your needs and then choose the insurance product. One size does not fit all in this case.
4. SIP can help you reach your financial goals
Investing in mutual funds through an SIP is the best way to achieve our financial goals, as it ensures that we invest regularly. With SIP, you invest a fixed amount each month in mutual funds and it becomes more likely that you will stick to the plan, making it easier to achieve your investment goals.
5. Buy assets, not liabilities; Invest in stocks
Invest in assets so they can earn you more money, without you constantly having to actively work for them. You can invest in stocks, especially dividend-paying stocks, as they provide a predictable source of income. Conventional wisdom says that young executives can afford to invest in stocks since their appetite for risk is higher. You can also consider investing in real estate investment trusts (REIs) which work just like mutual funds and allow you to buy into a group of properties managed by a single company.
Wealth building is a long term process and there are no shortcuts, so start your financial journey early and you won’t have to rush the process and you will reap the benefits in a few years.