Stepping into our 20s marks the beginning of life¡¯s prime years, doesn't it? With the new found wings of independence coupled with relatively lesser responsibilities, we aim to start turning the dreams that we nurtured since our growing years, into reality. Whether it's about owning your own vehicle, kick-starting a new business or going on a vacation abroad, dreams can take any shape. But one dream that I am sure almost everyone of us nurtures, especially when watching tv shows like Who Wants to be a Millionaire or reading the inspiring stories of successful investors like Warren Buffett, is to become rich. After all, who doesn't love money? However, have you wondered if it's enough to just run behind and endlessly attempt to earn in order to become rich? Certainly not. In fact, you already work hard to earn money, right? So why not let your money work for you, by investing it! And there¡¯s no better time than your 20s to do this, because the biggest advantage you hold in your 20s is, TIME!?
So read on to know some super-smart money habits that can guide you towards becoming a millionaire by the time you turn 30.
The first smart financial habit towards reaching any financial goal, is to learn the financial jargons, instead of running away from them. After all, it's the lack of financial literacy and awareness that often tends to make us ¡®jargon inverse¡¯ and reluctant to learn about financial products, which at worse, leads to incorrect decision making that harms your financial health in more ways than one.?
So, the next time you hear terms like mutual funds, risk appetite,?market crash, insurance or income tax, try finding their meaning and understanding them. With a plethora of mediums on the internet to learn from, whether online financial portals aimed to simplify the financial world for you, or personal finance channels on youtube, there are endless ways to gain financial knowledge in today¡¯s digital first world.? You can even develop the habit of regularly reading such portals, business magazines, financial/mainline newspapers, video channels etc. to grab hold of the basic understanding of various concepts. Gradually, this not only instills the willingness and awareness to deep dive into learning more, but also enables us millennials to become confident enough to make the right financial decisions at the right time. This way, you will also not be carried away by the tons of sales pitches and advertisements luring you towards putting your hard money into them.?You can also take assistance from financial advisors for the same, while at the same time ensuring you yourself too hold a good grip on at least the basics of personal finance.
Once you are well versed with the basics and have developed a keen interest to simplify the jargons instead of running away, the next crucial financial habit is to build a comprehensive money management strategy. A solid financial plan is what provides a proper direction to your money for growth, and helps you achieve the set goals of life. And, besides merely jotting down the plan depending on your current/expected life goals, income inflow, investment horizon and the potential risk involved, it's equally important to follow it in a disciplined manner. In fact, it's the discipline that marks the difference between a successful and unsuccessful investor.?
So, once you have laid your well thought financial plan after identifying and prioritizing crucial financial goals, estimating the approximate amount to be earmarked for each such financial goal, the time/investment horizon required to achieve the goals and the expected returns from the investment avenues available as per risk appetite, it¡¯s all about remaining disciplined towards your investments. No matter how much wealth you have and how hard you work to earn that, lack of discipline can stop your money from growing as per its true potential.
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Thinking of wealth creation without including equities in your portfolio is like trying to fire a gun without bullets in it. No matter how many biased opinions or hearsays intend to put equities into bad light, all you need to do so is stay clear of all these misconceptions and make equity mutual funds your bestfriend for wealth creation, especially long term. Over several decades, equity as an asset class has more often than not, outperformed both inflation?and fixed income instruments like bank FDs, debt funds, PPF etc by a wide margin over the long term, which makes it the most suitable asset class for achieving long-term financial goals. As far as volatility is concerned, remember that equities do tend to involve high degree of volatility but mostly in the short term, and not the long term, hence making them a suitable instrument to achieve long term wealth creation.
Also Read:?Frequently (Not) Asked Questions - How Safe Is My Money With Mutual Funds?
Most of us must have heard this phrase-Early bird catches the worm. But seldom are we able to abide by it, especially when it comes to investing,? Always remember, no amount is too small to start, and there's no better time to begin investing than right now! So wait no more and begin investing as early as possible to maximize the power of compounding, wherein the earnings arising from your invested amount get reinvested back into the principal, hence resulting in earning exponentially higher returns over the long term, especially for achieving big-ticket goals like child¡¯s higher education/marriage, and your retirement corpus.
To know how an early start can make a world of difference, let's take some examples wherein you begin investing in equity mutual funds (assuming a conservative return of 15% p.a.), during different life stages, with the aim to become a millionaire by 30.
If you begin investing at 22, a monthly SIP of just Rs 5,400 for 8 years can make you a millionaire by the age of 30, with a corpus of Rs 10.04 lakh.
If you begin investing at 25, a monthly SIP of Rs 11,200 for 5 years can make you a millionaire by the age of 30, with a corpus of Rs 10.04 lakh.
If you begin investing at 27, a monthly SIP of Rs 22,000 for 3 years can make you a millionaire by the age of 30, with a corpus of Rs 10.04 lakh.
As you can see from these examples, the later you start, the higher you have to contribute as SIP investment to reach your goal on time. Whereas on the contrary, the earlier you begin investing in a disciplined manner, the lesser you need to strain your finances, and comfortably reach the target corpus of becoming a millionaire, with small and consistent investments through SIPs.
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While there is no one size fits all formula here, whether to go for SIPs or lumpsum to invest in equity mutual funds. When deciding the?investment route?for mutual funds, take into consideration factors like your financial stability, investment goals, investible surplus amount and whether you possess the ability to dwell into market timing or not. Those who are equally fine with both investment routes, can go for lumpsum route instead of SIP, as the former is likely to fetch you higher returns vis-a-vis the same money invested via SIPs.
Let¡¯s take an example to understand this better.
Assuming a conservative 15% rate of return for investing equity mutual funds for a period of 5 years. If you go the SIP route and invest, say Rs 11,500 per month for 5 years, your corpus at the end of 5 years (total investment turns out to be Rs 6.9 lakh) would be?Rs 10.31 lakh. Whereas in case you instead invest the same amount, i.e. Rs 6.9 lakh, as lumpsum for 5 years, you would get a higher corpus of?Rs 13.87 lakh. Also, even if you intend to create the same corpus of close to Rs 10 lakh in 5 years, you would need to invest a lower lumpsum amount of?Rs 5.38 lakh?to create a corpus of Rs 10.82 lakh.
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