Some financial tips that every student should know

The years between ages 20 and 30 are certainly some of the most amusing years of one’s life. This is when most people experience some sort of financial freedom for the first time. Most people start earning regular income in their 20’s, which is accompanied by some intensive expenditure on trivial things. If you don’t strike a balance between your income and expenditure, you could fall into a potentially deadly debt trap. Financial mistakes that one makes in their 20’s usually have a long-lasting impact.

20’s is a phase everyone deserves to enjoy after having slogged for two full decades. However, one must exercise adequate caution to avoid certain financial mistakes that have the potential to ruin one’s future.

Here are the Top 5 Financial Mistakes You Should Avoid in Your 20’s:

1. Not Having Set Financial Goals:
   Most people in their early 20’s has not even thought about setting financial goals. This is the first mistake that many people make. Financial goals are generally set after taking charge of your income and expenditure. Once you have income and expenditure under control, you can start investing money in financial markets according to your goals.Financial planning, as a whole is all about setting down goals, and then working towards achieving them. This means that your investment strategies should ideally differ according to your goals. For example, if you’re looking to save money to buy a new car, it would make more sense to invest in balanced funds that provide a decent rate of interest. It makes absolutely no sense to invest in equity-oriented schemes if you’re looking to invest in the short term, as equity-oriented schemes can be extremely volatile in the short-term, which could delay your financial goals.
2. Not Being Adequately Insured:
   Most people in their 20’s look at insurance as a tax-saving tool. It is time someone said it – insurance is so much more than a tool for tax-saving purposes. We’re not just talking about life insurance, you must also consider getting a good medical insurance.For life insurance, the rule of thumb is to ensure yourself for at least 10-15 times your annual pay. Look for a good term insurance that will help you work things out in a smooth manner. Remember, the sooner you get a life insurance, the lesser you will have to pay in premiums.Having adequate health cover is paramount, as well. Look for a good health insurance policy that suits all your requirements, while having a lesser premium. Look thoroughly into all aspects of all policies that you’re considering. This is to avoid trouble at later stages when you need to claim health insurance.
3. Lack of an Adequate Emergency Fund:
   The importance of having an emergency fund that meets at least 4-6 months of your expenditure cannot be overstated. Emergency funds are very helpful when you need cash due to certain unforeseen events. Emergency funds can be used as a protection net in case of loss of job due to unforeseen circumstances. In other words, an emergency fund is aimed at supplementing expenditure in case of unexpected windfalls in http://income.As stated, your emergency fund should ideally consist of 4-6 months of expenditure. You can either invest this money in a low-risk ultra-short-term debt funds that provide significant protection to the investment while offering a decent return on the investment. Other than protection of capital, these ultra-short-term funds have no exit load. Alternatively, you can also keep your emergency fund in one of the private banks that offer a comparatively higher rate of interest.
4. Not Planning for Retirement:
   “Thou Shalt Plan for a Good Retirement”
   Retirement is often seen a distant future goal, and is often ignored by a lot of people in their 20’s. This happens because most youngsters don’t realize how important it is to plan for retirement. These days, life expectancy is seeing a higher trend, as is inflation. You need to build a good retirement corpus that will help you sustain in your retirement years. Obviously, you need to adjust inflation when calculating any kind of investment.Starting to invest for retirement early on in life has a lot of benefits. The most commonly heard benefit in this case is “compounding”. Start investing in a long-term investment horizon, such as equity-oriented mutual funds. Systematic Investment Plans (SIPs) are very helpful in setting investing discipline early on in life.

The above numbers are based on a 15% CAGR (Compounded Annual Growth Rate) for respective time periods.

1. Ignoring Credit History:
   These days, almost everyone needs loans for some reason or the other. The first thing that financial institutions check when you apply for a loan is your credit history, or more specifically, your credit score. Credit history is basically a record of how well you manage credit, whether or not you repay the loans on time, etc. Absence of a credit history will cause trouble when you want to apply for a loan, such as four-wheeler loans, home loans, personal loans, etc.A credit card is among the best things to build up a credit history. However, credit cards should be used smartly. Do not spend any more than you have. Use credit cards where you would generally use cash and then pay the card company on time. This doesn’t affect any of your transactions but will have a positive impact on your credit history.

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