The decade when you are in your 20s is one of the most exciting periods of your life. You would have just completed your studies and got into a new job. Plus you would have an income and freedom. It is a time when one is getting started fully with adult life, with paying bills, rent or even EMIs, taking responsibilities and also making important life choices. However, when it comes to finances, the 20s are a very important time too, setting the tone of your financial life. We tell you 5 things you must do when you are 20 as far as your finances are concerned.
Irrespective of how much you earn, you need to ensure that your expenses are lower than your income so that you can create a surplus. The only way to keep track of where your hard earned money is going is to have a budget. List down all your expenses. You can use one of the several budget apps that help you get an idea of how much you are spending under each category. Once you know how much money is going where, you can make adjustments if necessary. Let us say you are spending Rs 15,000 every month on eating out and ordering food, you may try and see how you can reduce that expenditure.
There are times when some emergency expenses will pop up. It could be because you may need to urgently buy a home appliance that needs replacement or for medical emergencies. Emergency funds also come in handy in case of a job loss or when you are shifting jobs. Keep at least 3 months of your expenses in a savings account or liquid funds, from where you can access at a short notice.
Here we are talking about health and life insurance. Even if your company is offering you health insurance, buy a health plan. The earlier you buy it, the lesser you will pay as premiums. You need to get life insurance if you have any dependants like parents. In that case get an insurance cover of 6-10 times your annual income. Buy a term plan online as it is the cheapest life insurance on offer.
In the 20s you may think it is too early to save for long term goals like retirement and so on. Nevertheless, start savings in some form. The idea is to start putting away at least 10 per cent of your income every month. One good way to get started is to open a Public Provident Fund (PPF) account and starts making deposits. For getting an exposure into equities, you can invest in Equity Linked Savings Scheme (ELSS) funds. While PPF has a lock-in period of 15 years, ELSS has a lock-in period of 15 years. Both these instruments are eligible for deduction u/s 80c of the income tax act up to Rs 1.5 lakh. Once the tax saving has been taken care of, you can invest your surplus funds in SIPs of equity mutual funds. Over a long term horizon they have the potential to give high returns.
You would have completed your higher studies, but you need to keep on investing yourself. Whether it is a certification, any continuing education, a MBA or anything else, you need to constantly upgrade your skills. The idea is to keep yourself at par with new skills in your industry and also any associated industry if you want to make a career shift.
Do these and you would have built a base for the rest of your life.