SAVING
5 Smart Financial Moves to Start Saving in Your 20s
By Ankana Ghoshal
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There's no denying the fact that your 20s are the most crucial stage of your life. This is the period when you’ll decide your career path and get surrounded by various responsibilities. While embarking on this new journey, however, many people tend to make one critical financial mistake, i.e., only thinking about saving money but not acting on it.
Indians are one of the biggest savers in the world. On an average, Indians save over 33% of their income. Despite these savings, India is still counted in poor countries. The reason being we don’t know how to convert those savings into a good investment.
As tempting as the idea of going out and enjoying life may sound, it’s important to understand that the savings that you start in your 20s will help you achieve your financial goals more easily. Not to mention, the earlier you start saving money, the more money you’ll have.
But, what’s the right way to save money? How much money should you put out in your savings fund every month? These are a few questions that every person in their early 20s struggles to answer. So, in this guide, we are going to share 5 smart financial tips from industry experts for everyone in their 20s that’ll help them sail in the right direction.
The mistake most people make is thinking they don’t earn enough to save but in reality, even if you start small but save consistently, you can build a secure future in the long-term.
Here are the best ways that can help you start small savings with ease:
An RD assures a fixed return at the end of its tenure. Depending on the money available after your liabilities and expenses, you can start an RD with just Rs.500/- or its multiples.
You can start to Invest in mutual funds through a systematic investment plan (SIP). You can choose to pay a fixed amount every month towards mutual funds.
PORD’s are systematic savings plans made specifically for small savings. Anybody above the age of 10 can start a PORD. The minimum investment limit in a Post Office Recurring Deposit is RS. 10 and there is no upper limit.
So, if you start an SIP, RD, or PORD for Rs.2000/- every month. If the preferred tenure is 5 years, and you are offered an interest rate of 9%, by the end of 5 years, you get Rs.1,30,800/-.
Note: The interest rates differ from scheme to scheme.
Most of the financial issues we deal with may have stemmed from a basic lack of self-control. You can never start saving until you set a limit to your spending. Apps such as MoneyHop, PocketGuard, and Stash can help you set budgets for the month ahead so that you achieve your saving targets. These apps will also help in understanding where you are spending. This will help you in figuring out where you can cut down on your expenses.
An emergency fund is basically a savings account that’s primarily created to tackle unexpected financial hardships. You can consider the emergency fund as a lifeboat in case of extreme financial emergencies.
It is very important to have a cash buffer to tide us over any unforeseen financial requirements, such as paying for emergency medical expenses or automotive repairs. If caught unprepared, one may be forced to take personal loans. These loans are very expensive with interest rates as high as 30% annually.
It is advised to set aside a fixed amount regularly To help in creating a cash fund that is equal to at least 6-7 months of income. Contributing to this fund should be non-negotiable as would be dipping into the fund for any non-vital expenses.
Even though almost everyone ends up starting an emergency fund in their life, it would be much better if you take this step in your twenties. Why? Because in case you encounter any unexpected situations in your life, you won’t have to dry your primary savings account.
Global zero balance accounts are the new way of saving as you have the ability to use it anywhere in the world, withdraw cash from anywhere in the world without hassles such as minimum balance, hidden charges, and the archaic process. Currently, only a few banks are doing that in the world, but if you’re in India, then moneyHOP is the best zero balance global account which can help you set budgets, make international money transfers, and convert currencies from INR to USD or CAD or others seamlessly.
Retirement may seem to be far off, but it is extremely important to save up for it. Not saving for retirement is a very common mistake around the world.
Also read: 7 Common Financial Mistakes made by Indians
Like the emergency fund, setting up a dedicated retirement fund is also crucial for people in their 20s. As the name implies, the retirement fund is the account that you use to save money for your post-retirement life.
Retirement is most often misinterpreted as pension, but accumulating a retirement corpus is different and an addition to a monthly cash flow that a pension would provide. Availing insurance coverage that can be renewed lifelong could also be a great retirement tool.
As soon as you get your first full-time job, make sure to open a separate account for your retirement fund and decide on an amount that you can put out every month. Keep in mind that the key to growing your retirement fund is to be consistent.
So, that concludes our guide on how to make smart financial decisions in your 20s. In addition to these three tricks, people in their 20s should also use a dedicated banking solution to save more effectively. MoneyHop is one such banking solution that’s specifically tailored for millennials to make smart financial decisions and save money stress-free.
