Five Financial Planning Rules for Those in their 20s

financial planning

You must have heard the words Financial planning and Financial Freedom from people around you (especially elders), many times. But, what exactly are these two terms? Both these terms are interlinked, for you cannot have one without the other. You can gain financial freedom only when you manage your money well. This article aims at telling all youngsters in their twenties how to plan your finances and thereby achieve financial discipline to attain financial freedom.

When you are young, the only thing you think about most of the time is, how you can spend your money, and how long you can make it last! Planning your finances or money management is the last thing on your mind. Even if it did cross your mind, you would feel that it is too cumbersome a task at the moment, and there’s plenty of time left to do this. What you need to realise is that the sooner you start managing and planning your finances, the more secure your future will be. Most youngsters put off this planning to a distant future, as they think it is only to be done at a later stage in your life when you get saddled with responsibilities. The time to start is NOW, and the first step is to set a discipline in the way you manage your expenses. Simple, everyday things that you can keep a check on.

Use credit cards, but avoid credit!

Today, it is prudent to use credit cards for convenience, but it is equally prudent to ensure that you don’t revolve your credit beyond the bill date. The lack of pain in parting with real money because you are using plastic can lull you into complacency. Being conscious of this is a very important step in ensuring financial discipline. Do not fill up every credit card application that you get. Make sure that you have money in your account before you even think of buying anything, even with a credit card. High rates of interest on revolving credit on your credit cards can erode your finances quickly. If you use a credit card, do not be tempted or lured into carrying forward your dues beyond the credit cycle i.e. bill date.  Pay your credit card bills in full.

Be prudent about loans

Be careful of what you borrow for and borrow money only if you must. Whether it is for a car or a house, borrow within your means and don’t go overboard. Do not take loans for going off on a holiday or other such discretionary spends. Personal Loans are typically to tide over an immediate cash crunch but many people end up taking these loans just to be able to pay off the EMIs on their other loans. A strict discipline that one has to follow is to focus on paying off all loans as quickly as possible to become debt-free in life as soon as possible. Your annual bonus or other such incentives should ideally be used towards prepayments towards your loans – start with the most expensive one. On the other hand, if you are planning to buy a house, take a home loan while you are still young. Because you will qualify for a longer tenure, your EMI amount will be much lower than if you avail it, later in life.

Plan and establish your priorities

List out your priorities, keeping the most important ones at the top, when doing your financial planning. Think hard if you truly need to spend money on any item. If it can wait, postpone the purchase. And, if it isn’t that important, forget it, and use your money for things that genuinely matter.

Get insured

Most young people don’t think they need to buy insurance because age is on their side. But that is the best time to buy – because you will benefit from lower premium rates because of your age. It will become much more expensive for you to buy a new insurance policy 10 years later! Also, it doesn’t matter whether you are single or married, you must invest in insurance that will take care of you and your dependents in the future. Similarly, in this day and age of mounting medical costs, it is extremely imperative to have a health policy for the entire family.

Look for a professional

One of the most important things to do to help manage your finances is to hire a trusted professional. Whether it is an assessment of your finances or financial plan, hiring a professional planner is much better than doing it yourself. Whether you want to retire early or gain financial freedom by a certain age, all you need to do is set up your life goals with your planner very early on, and let them help you get there.

When you are at the beginning of your work life, is the time for you to take build a discipline across various aspects of your life. This will help you stay organised and plan your life ahead to build a sturdy financial foundation that will help you reach financial freedom sooner than later in life.

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