Jumpstart Your Finances

Young India is on a roll. Today, those under the age of 30 make for about 50 per cent of the population. This is a generation of restless Indians with opportunities like never before. There are ample job opportunities, starting salaries are up, more youngsters are taking the entrepreneurial path and the mood is upbeat. For instance, 22-yearold Himani Walia has just completed her Botany (Honours) from Delhi University and is in two minds whether to pursue a course in interior design or take up a Masters in Psychology. The flipside of being young with choice is to be also confused of what to do in life.

The condition is little different even among those who are into their first job. Talk to the young working professionals about their finances and the common refrain is no matter how much money they make, it is never enough. It is not rocket science to convert the good times into lasting wealth by learning to manage your money on your own and gaining control over it, before it starts controlling your life. “It is interesting and inspiring to interact with this young working population—some of them know so much more than what we did at their age,” feels Uday Dhoot, founder, OyePaisa.com.

Financial independence

Turning into an earning adult can be stressful. The amount of money you earn is finite, yet the desire to spend it through various avenues is nearly infinite.

“They need to be explained the importance of striking a balance between today and tomorrow. Once they understand that their financially productive years are limited, they become quite open to making medium-to-long-term commitments for their future,” says New Delhi-based financial advisor Tamanna Verma.

While many 20+ adults still rely on their parents’ help with financial issues, once they get into a job, they should work towards complete financial independence. Not only will it free up their parents’ money for other things, it will also give them a sense of pride in how they live their life. T. Sophia Panmei (26) works as a registered nurse at Fortis Memorial Research Institute, Gurgaon, and is the hope for her parents and siblings back in Manipur, who are looking for her financial support. “Finding a job is not easy even in a sector that is growing despite all the qualifications. I decided to move to New Delhi to work with the best hospital,” she says. However, the going is not easy and after her routine expenses she is left with hardly any money to send home.

In another corner of Delhi, 14-year-old Akshat Mittal is already an entrepreneur who sold his first venture within months of its creation. The odd-even traffic rule in Delhi resulted in this boy coming up with an easy and practical solution by way of setting up www.odd-even.com. “I want to use technology to solve problems and am working on my next venture—www.changemyindia. org which will connect all Indians to solve problems that we face in our daily life,” explains Mittal.

His first venture was lapped up by Orahi, a car pooling platform, for an undisclosed sum and his father is managing his finances at the moment. What is impressive is his zest to develop solutions that have a commercial value.

Golden rules

Your finances are as much about habits and the values you choose to live by. “I save money by way of investments in equity mutual funds and insurance and strongly believe in the power of compounding,” says 28-year-old Delhi-based Dr. Nimisha Arora. She is clear what she wants to do with her money and what it should do for her—be there when she needs it.

When you are young and single you should develop the habit to save and invest; there is ample data to indicate the advantages of starting early when it comes to investing. In his bestseller book, Rich Dad Poor Dad, writer Robert Kiyosaki says, “It is not how much money you make; it is how much money you keep.

The power of compounding can be best understood with the example of what Rs,500 invested every month can do. Investing Rs,500 a month over the next 25 years could fetch you Rs,12.75 lakh at 12 per cent returns at the end of the 25 years. That is the value of Rs,1.5 lakh invested over 25 years. “Compounding is the eighth wonder of the world, it doesn’t stop. If you start early, the power of compounding will benefit you significantly,” says Nilesh Shah, managing director, Kotak AMC. He further states that the belief that income minus expenses is savings should not be what one should live by. “Income minus savings is expenses, that is what you should live with,” stresses Shah.

Experts recommend one to start by creating an emergency fund that has monies worth 3-6 months of your expenses. “Often, life and health insurance are taken without putting much thought into it. Apart from a life cover, the insurance covers that are absolutely necessary are a personal accident cover, health insurance plan and a home insurance cover,” advises Tapan Singhel, MD & CEO, Bajaj Allianz General.

Realising dreams

To realise your financial dreams, start by developing financial goals and create a financial plan to keep you focused on creating financial reserves. With so many financial milestones to achieve in life, an early start is warranted. Look at shorter term goals and figure out how much you will need in two to five years, such as paying for a wedding, car or down payment for a house. Says Sanjaya Gupta, managing director, PNB Housing Finance: “We have a lot of youngsters applying for home loans. Keeping in mind the age of these younger applicants, financial institutions have extended the loan tenure to up to 30 years. As the loan tenure lengthens, the monthly EMIs fall, leaving the customers with higher disposal income to let them lead the quality of life they wish to live,” he says. There are lenders who are offering special schemes for young professionals when it comes to home loans, encouraging them to make a home purchase early on in their careers.

“Major part of my income goes towards EMI payment for home loan that my husband and I took to purchase a house,” says Arora. However, for most youngsters, EMIs are mostly meant to fund their current desires. The temptation to buy the latest gadget or car is irresistible and makes many believe that taking loans is a means to achieve financial goals. “They are not aware of usage of credit. They just take it as it is easily available, resulting in an undisciplined use of credit,” explains Dhoot.

The instant gratification is an ego booster, but it comes at the cost of leaving you with reduced saving and more debt to service.

Right way to investing

When it comes to investing for your future, it’s never too early to start. “Start a monthly SIP with some good equity mutual funds and never think of redeeming them for a long term. Always aim to increase this SIP amount with every increment in salary and let the power of compounding help you create wealth for the long term,” suggests D P Singh, executive director & chief marketing officer (domestic business), SBI MF. Set an automatic transfer for a fixed sum every month depending on how much you can afford to save and invest.

At the same time, investing involves time, discipline and awareness. If you are new to investing, you should start by establishing an appropriate time horizon. It will also be helpful to understand risks involved with investments and how much risk you can stomach. All investing involves some risk and it is important to remember that in the investment world, higher risks are generally associated with potentially higher rewards, and lower risks with potentially lower returns. “Youngsters should understand their risk capacity and tolerance levels and identify suitable investment avenues,” says Verma.

After determining how much risk you can afford to take, think of the time duration for which you will be investing. Equity as an asset class is what you should put your money into for any financial goal that is 5-7 years away or more. Also understand the details about different asset classes—industry sectors and geographic regions generally do not move in sync with each other, and no one can predict exactly which type of investment will outperform the other. By spreading your savings among a variety of investments—a strategy called asset allocation—you will minimise your exposure to risk in any one asset class, and smoothen out your returns over the long run. Although it may be enticing to take part in the stock market gyrations, do so in a tempered way, and deploy most of your equity investments through mutual funds.

Although the average age of investors is above 35 years, it is falling with time. “There are three aspects which I believe directly affect a late start towards investing—awareness, innovation in products and ease of investing in mutual funds,” feels Singh. On their part the mutual fund industry is working towards spreading financial literacy and awareness in a manner that more people start investing from an early age. The efforts taken to make KYC (know your customer) compliance easy and convenient are also working by bringing in more people into the investing fold at a younger age.

In the quest for achieving your financial goals—do not overly worry. If you have not started yet, it is never too late to start paying attention to what your wealth is doing, and working to create more of it. Going by the dreams and desires of youngsters, there is a lot more to life than just money. As Mittal says, he wants to develop solutions for the everyday problems faced by people. For Panmei too, the dream is to serve people, study further and help her family financially so that they can dream better. Whatever your relationship with money, the fact remains that it is ever-evolving—what is needed for it is to be positive.

shipra@outlookindia.com