20 is an age when you actually start experiencing money management by yourself. From a college life to the corporate world, the move is highly significant for you. There is a self-confidence built up because you have been selected from a campus placement and a cherry adds to it when the salary is as per your expectation. Think of a situation when you have lived life in a small town and you land up a job in the hearts of Mumbai. There is no limit to your expectations.
But the glamorous life of a bigger city is always demanding and put a huge burden on you to match the lifestyle of peers. Its necessary then that you take care of your finances in an efficient manner. Any wrong decision here can be devastating for your future early in life.
Here are few tips on how you should go about managing your money when you are in 20s:
- Campus Placement
When you get your first job from your college campus with expected salary, things may work out good for you. But situations are difficult when the employment scenario is not in favor and the salary you are offered is below expectation. At this stage if you are moving to a big city then your expenses are going to be higher. Surely you may want to settle things with good change in future but managing money instantly will be a tough task. It is thus wiser that as you are offered a job you should work out some estimation on how you will manage your money especially when settling in city away from your native home. Room rent, travel, food etc.. will be major chunk of your expenses. A planning here will help you in identifying the best options to keep your expenses lower.
A budgeting is a good tool at all stages. Ideally you should start budgeting as you start earning. It will have two major benefits for you- First, it will give you a clear understanding of your earnings and your expenses which will help you in knowing how much you can save. Many have responsibilities of sending money to their parents or repay their education loan. Budgeting will help you to do that more efficiently. The second benefit it gives you is that it makes you take corrective measures if any month you go beyond your means. It will give you exact picture where you have spent your money last month which has created a shortfall this month. Thus, using a tool like this right from start of your working career work well for managing your finances.
You may not require a high emergency fund but some amount should be lying in your liquid account for any immediate requirement which may arise in the future. If there is a change in your employment and 1-2 months may go without earnings you will need funds to manage your expenses during this period. There can also be situation when you might have to relocate to another city.No one wants to borrow again from parents which they never deny how hard they have to manage it. If you are repaying education loans or have parents to take care creation of such an emergency corpus becomes a necessity. So in an ideal situation create a 3 month emergency fund and more you can identify based on your requirement .
Not all insurance may be your need at this age but there are few insurance which should be bought. A health insurance is one of the priority. You may be getting it from your employer and so may not consider a need. But you may see a change in your employment and with group insurance benefits being curtail down it may not be sufficient. So buying a standalone policy will be good. Similarly term insurance need will arise if you have loan repayment going or responsibilities of parents. The other insurance you need to keep in mind is disability insurance as most young earners travel on bike where the rate of accidents are high. You would not like to become a burden on your parents if this happens. So an accident cover which can provide with sufficient money to sail through such difficult times should be a priority.
The higher number of people falling in debt trap are students and young earners. The main reason behind this situation is that at this stage you do not have responsibilities and what you earn is yours so you go beyond your means in building your lifestyle. You will be lured by your banks, NBFCs for pre-approved loans and credit cards which will be a temptation you cannot avoid. Every time you visit your bank you will be offered such products. There is no recourse but to resist this temptation as what habits you develop now will remain for long. So understand what kind of credit products these are and know what your need is. Any mismatch between these two can be an offer for a trouble. If at all, avail one credit card and utilize only what you can repay. For most benefits debit cards are viable alternatives today to inculcate good spending habits.
It’s not very far when you will have to start planning for yourself and your family. In today’s scenario the first planning which every young individual meets with is buying a house. The sky rocketing prices makes you think how unaffordable it can become in future so you plan to buy it early. What if you do not have enough resources? You stretch your finances very early jeopardizing your other goals. Similar situation can arise with any other event planning. It’s wiser then that you plan early in life so that you can accumulate a good corpus to limit your liabilities and still leave much resource for your other goals. So as you start earning start investing be it in smaller amounts. Keep enhancing contributions as you move ahead. A strategy like this will always ensure you do not have to dive into your savings to meet your intermediate requirement. Research yourself or take advice so that you choose the right instruments.
You do not need rocket science to manage your money. What you need is a bit of awareness and right advice if you cannot do it yourself. Most important is that you save for yourself first before you start spending money. If you follow this basic rule you will do good with your lifestyle and your goals. So don’t wait and start planning because it’s not plan which fails but it’s we who fail to plan.
Have you worked on your requirements? Do you monitor your cash flows?
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