How to have fun in your 20’s and save for your financial goals
Most people start earning between 21 and 25 years, depending on when they complete their studies. The moment they start earning, they are caught in two minds. One wants to live in the present and enjoy these times. The other wants to take charge of their financial responsibilities (start saving for your retirement) and financial liabilities (repay loans like education loan, vehicle loan, if any). This article will explain how to have fun in your 20’s and save for your financial goals.
In such a scenario, you need to maintain a balance between frugality and extravagance. If you keep aside your desires and use your income only for repaying loans (if any) and for saving and investing, you will not be able to enjoy life with such frugality. At the other end, if you live an extravagant life and splurge all the money on your dreams and desires, at a later stage in life, you will regret it. In this article, we will discuss the steps for maintaining a balance to have fun in life by living in the present and saving for your future financial goals.
Some of these steps include:
The moment you start earning and spending money, get into a habit of making a monthly budget. Always have a spending budget and try not to exceed it. This will make sure you enjoy life by spending on things that you desire, but at the same time doing it within reasonable limits or defined limits. Then, a couple of months down the line, you will know what percentage of your income you are spending and how much you are saving, which can then be channelled into investments.
Use expense tracking apps.
While budgeting, as explained in the above section, you need to analyse if you exceed your monthly expense budget. You can use technology to track your expenses. These days, many expense management apps tell you how much you are spending and on what.
The apps will show you how to look at discretionary spending by giving you a detailed analysis of your expenses. This will help you to distinguish between wants and needs. While wants are essentials, you can postpone or drop demands. You can then use this analysis to check in which areas you can cut down your expenses and revert to within your monthly expense budget so that a balance between costs and savings/investments is maintained.
Start saving and investing early on.
When you start earning, it is okay to use a significant portion of your monthly income for the first couple of months for fulfilling your long pending list of dreams and desires. However, once this honeymoon period is over, you should gradually increase the proportion of savings and start investing in your financial goals. When you start saving and investing early, you have the following advantages:
- Higher equity allocation: At a younger age, your risk appetite is high, and hence you can allocate a higher share of your investments to equity mutual funds. Equities have the potential to give inflation-beating high returns. As your age increases, your asset allocation will change, and your equity allocation will go down, and your fixed income allocation will go up.
- More time for investment: The earlier you start investing, the more time you will have to achieve your financial goals. Also, the earlier you start investing, the lower the amount you will have to invest towards your financial goals, leaving you with spare cash to spend on your dreams and desires.
- Benefit from the power of compounding: In the process of compounding, your regular returns on investment (interest, dividend, etc.) are reinvested to earn higher returns. With the combination of potentially high returns from equity, a long investment time horizon, and the magic of compounding, your returns can grow exponentially.
Choose good debt over a bad debt.
In the above section, we discussed goal planning. Buying a house is the first goal for most people. You can accumulate the down payment through a goal plan and fund the remaining amount through a home loan. Prudent financial planning involves spending on good debt over a bad debt.
For example, a home loan taken to buy a house that will appreciate in the future will be a good debt. A vehicle loan to buy a vehicle that provides convenience saves time, and travel costs will also be a good debt. On the other hand, discretionary spending like buying a consumer durable or funding a vacation with credit card money or a personal loan will be a bad debt.
While taking any loan, you should always think about whether it is good debt or bad debt and accordingly proceed ahead.
Fund consumer durable purchases or vacations with your own money
In the above section, we discussed buying a consumer durable or funding a vacation with credit card money or a personal loan classified as bad debt. However, purchasing a durable consumer product may be essential.
Vacations are also necessary as they provide a break from the hectic work schedule, time to relax, rejuvenate and join back re-energised. So, to purchase that essential consumer durable or to take that necessary vacation, you can plan for it rather than funding it with a loan.
You can do goal planning for these goals using the Glide Invest App.
- Select the “Create your own goal” option, give it a name, enter the amount you wish to accumulate and the time you need the money.
- Based on your risk profile (aggressive or conservative), we recommend an investment portfolio.
- You can choose the investment portfolio and automate your investing.
- The accumulated proceeds can be used to buy the consumer durable or take that welcome holiday break.
Plan for your life moments and avoid falling into a debt trap. A self-funded vacation will always leave you with happy memories, whereas a break funded with high-cost debt can leave you with regrets. With a planned purchase or planned vacation, you can also avoid the temptation of dipping into your emergency fund or savings and investments meant for your other financial goals.
Save money with discounts and cashback.
In the above section, we saw how we could plan and self-fund vacations and durable consumer purchases. Apart from spending on these, you will need to spend regularly on groceries, and daily use household products, fashion, movies, dining, etc. You can save money on these spends with discounts and cashback on credit cards/debit cards/wallets as follows:
- Groceries and daily use household products: Usually, supermarkets and online marketplaces offer high discounts on MRP for purchases of groceries and everyday use household products in the 1st week of every month. At the same time, bank and online wallet companies also come up with discount and cashback offers. When you club the offers from merchants and banks, you can save a substantial amount of money on your regular grocery purchases.
- Fashion: Most offline and online merchants come out with mega fashion sale events multiple times in a year on days/events like Republic Day, Independence Day, Diwali, etc. They offer high discounts of up to 75% during sale events. At the same time, bank and online wallet companies also come up with discount and cashback offers. When you club the offers from merchants and banks, you can have substantial savings.
- Movies and food: Many banks and online wallet companies provide regular Buy One, Get One (BOGO), flat 50% discount kind of offers to their customers on movies, dining out, ordering food delivery, etc. Some of these offers are on every month. So you can avail of these offers and save money.
With all the above offers, you can save a substantial amount of money every month. So, a little bit of planning can help you enjoy life with all these events and save for the future.
Set small goals, achieve, and celebrate
In your financial planning journey, you will have long-term goals like building a fund for a child’s higher education and marriage, own retirement, etc. While you will eventually achieve these financial goals, you should not wait that long to celebrate their accomplishment.
Life is all about enjoying every moment of the financial planning journey. To do that, along with primary long-term goals, you should also set small-small goals. Every time you achieve a small goal, you should celebrate and reward yourself.
The setting, achieving, and celebrating of small goals can include:
- Staying within the monthly budget
- Funding a consumer durable with own money
- Enjoying a vacation with your own money
- Building and maintaining the emergency fund
- Successfully making the monthly, quarterly, and yearly investments required for meeting financial goals.
- Saving more money than target in a month, quarter, year, etc.
- Saving more tax than expected or not paying any tax by making optimum use of available tax exemptions and deductions.
- Completing the appropriate asset allocation changes with every passing year.
- Starting a new mutual fund systematic investment plan (SIP)
These are just some of the suggestions for your financial goals. Apart from the above list, you can create your own goals too.
Whenever you achieve any goal, you should pat yourself on the back. You should celebrate the accomplishment with family and reward yourself. This will make the financial planning journey enjoyable and keep you motivated and focused.
Goal setting, achievement, and celebration can go beyond financial goals also to include personal and professional goals.
Be in the company of like-minded people.
Well, we all know how tedious a lone journey can be. But, if you have company, the journey becomes a lot more enjoyable. The same is the case with your financial planning journey. You should be in the company of like-minded people who are focused on their financial goals rather than people who are just splurging money and are struggling with debt.
You can share your experiences and also learn from the experiences of other like-minded people. In the company of people focused on their financial goals, you will enjoy your financial planning journey. The probability of you accomplishing all your financial goals will be very high.
Automate all your investments, EMI payments and other payments
While making regular payments, whether for your investments or expenses, it is always a good idea to automate your payments. For mutual fund systematic investment plans (SIPs), the AMC will ask for an auto-debit mandate. This will make sure your investments continue to happen automatically without you having to remember making payments manually. With auto-debit of monthly SIP amount, your financial planning journey towards accomplishing your financial goals will continue without any interruptions.
Similarly, you should register for an auto-debit mandate for insurance payments (life, health, and other general insurance plans). This will make sure your life, health, and your other assets enjoy uninterrupted insurance coverage.
For any loan repayments also, the financial institution will ask for an auto-debit mandate. For credit card payments, you should register for an auto-debit mandate from your side. Banks charge a hefty late fee and up to 4% monthly interest on credit card dues. Credit cards are the world’s costliest loans. Always pay the monthly bill in full and never carry forward any balance.
Similarly, for other payments like mobile, electricity, broadband, water bill, etc., you should register for an auto-debit mandate. Auto-Payment will make sure you continue enjoying these services unhindered.
By automating all your payments, you can focus on your work and enjoying life.
In one of the earlier steps, we discussed the benefits of starting to save and invest early. But, it is crucial to take a systematic approach towards investing. You can do this through goal planning. The Glide Invest platform can help you with goal planning. The process of goal planning involves:
- Identifying your financial goals
- Quantifying them and making a goal plan for each of them
- Doing risk assessment and going for appropriate asset allocation
- Implementing the goal plan
- Reviewing the plan regularly until accomplishment
Enjoy the financial planning journey.
Using the above suggestions, you can strike a balance between living an extravagant & a frugal life. If you save and invest all your money, you will not enjoy life. On the contrary, if you splurge all the money, you will be staring at a dark future. Hence, you need to save and invest in your future and enjoy life to its fullest on your financial planning journey. To get guidance for investing for your financial goals, download the Glide Invest App from Google Play Store or Apple App Store and get started.