9 Investment Tips for Young Earners

Written by : Knowledge Center Team

2021-02-14

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Very few feelings surpass what you feel when you get your first pay check. You will already want to buy many things. While these things are also important, you need to take care of your future as well. The earlier you start to invest, the more your fund can increase. This is the power of compounding.

The value of money is more today than tomorrow. Let's understand with a short example:

- If you invest only 1,000 per month at the age of 25 years, then at 8% interest, your investment will be worth 23 lakhs when you will be 60.

- On the other hand, if you invest the same amount at the age of 35, your investment will just amount to Rs 9.5 lakhs.

So, investing money is extremely important. Following are 10 evergreen investment tips for beginners and young investors:

1. Start Investing Early

Take it as a golden rule of investment, the earlier you start investing, the better it is. This is because your investment will get more time to grow and take the benefit of the power of compounding. To put more weight in this tip, here is a principle most great investors abide by:

“Start investing as early in life as possible.” Every great investor you know started as soon as they could at a very young age. This is simply for one factor – compounding. Time is the second factor that you can control to some extent as an investor.

The more time you give to your investment the better growth you can enjoy on the money.

2. Buy Insurance Early On

Life insurance has become a necessity now, more so after the coronavirus pandemic. You need to ensure that your family stays financially protected even after you are not there. You should have the following insurance covers as soon as you start earning:

a) Term Life Cover

b) Health Insurance Cover

c) Personal Accident Cover

You must be wondering what would I do with life insurance at a young age? A good reason why you should purchase insurance early on in your career is the cost. You can get insurance at a much lower premium when you are young. Insurance premium increases with age.

Get Started with a Term Plan

A term life insurance is the cheapest and the simplest form of insurance available. You can get coverage for a large sum at a very affordable price.

Policies such as Canara HSBC Life Insurance iSelect Smart360 Term Plan offers you the option of increasing cover. Another benefit you have with the iSelect Smart360 Term Plan is the default terminal illness cover.

Factors to Consider while Buying a Term Life Insurance

With this, you can take a simple policy, and increase your cover as you have dependents

Click Here to use Term Insurance Calculator

3. Save First Spend Later

Savings is the key to a better financial position. But savings is not easy, especially when you are young and you want to spend more. Remind yourself that saving from now will help you immensely in future.

Follow the rule of saving first and spending later. After getting your salary, you should set aside a certain amount straight away. This should be at least 20% of your salary. This will help you build a habit of saving regularly.

4. Prioritise and Track Expenses

You cannot have everything at once. There is a right time for everything. Thus you need to prioritise as well as track your expenses along with goals.

A great way to do that is by creating a budget. A budget will help you assess and track all your income and expenses in one place. A budget can help you in many ways, such as

a) You can get to know about which expenses that are not necessary

b) Budgeting makes sure you do not overspend

c) It can help you to know how much funds are idle

5. Define Major Financial Goals

Life is full of goals, but not all goals carry the same importance. So, one of the best tips for young investors always includes prioritising your goals. Before making investments, you should be clear about the goal you want to achieve through the investment first.

Financial goals can be divided based on the term

Short-Term Goals: Less than three years
Medium-Term Goals: Three to five years
Long-Term Goals: Five years and more

Here are some things to help you properly define the goals

- Use the theory of S.M.A.R.T goals to set your goals that are clear and concise

- Factor in the inflation rate. Due to inflation, the prices of goods now will not remain the same 5 or 10 years down the road

- Write these goals along with your plan on a paper

6. Avoid Spending on Credit

This is one of the best investment tips for beginners in modern times. When you start earning, it is easy to be overwhelmed and go on a spending spree. You can avoid this binge spending with the following simple facts:

Save first
Prioritise expenses (spend on what needed first)

Credit cards have now made it possible to pay with just a tap or a click. The ease of payment also makes it easy for you to pay for things you do not need. The statements of your credit spending come at the end of the month and the figure at the end can take you by surprise. These also come with high charges.

Here are some tips that can help you avoid spending on credit

- Pay your bills first

- Set a pre-defined limit on your credit card

- Check your spending regularly

- Avoid taking personal loans to cover spending

7. Invest Regularly

You should invest at regular intervals. This helps create discipline in investing. Do not worry if you are not able to invest big, but be regular.

Investing regularly removes the need for you to time the market. Investing constantly will remove the need for worrying about the state of the market.

This will also help average out your investments and get you through the volatile ups and downs of the market.

8. Use Tax-Saving Investments for Long-Term Goals

Some investments attract tax deductions. The government have enabled these deductions to promote investments. Know about these investments and use them to achieve long term goals.

Some of the tax-free investments are Life insurance policies such as ULIPs, Guaranteed Savings Plans and other government-backed instruments such as PPF.

Plans Canara HSBC Life Insurance ULIP Invest 4G and Guaranteed Savings Plan offers tax benefits u/s 80C and 10(10)D.

You can avail of deductions of up to Rs 1.5 lakh towards the premium paid u/s 80C of the Income Tax Act. While the maturity benefit is tax-exempt u/s 10(10)D.

9. Maintain an Emergency Fund

By now you must be highly enthusiastic to invest and go for your goals as fast as you can. But with life being so uncertain, there is no guarantee that your plans will work exactly as you hoped.

Emergencies can occur at any time and thus can push you back on the road to achieving your goals. This can come in the form of a job loss, a medical issue, etc. Thus, be prepared for these emergencies financially is important so that you get back on the road for your goals in no time.

Start building an emergency fund by setting aside a part of your earnings, slowly grow this fund. An emergency fund should usually have funds that are equal to your 5-6 months salary.

Start Early to Go Far

Financial plans and the investments that you make at a young earning stage play a huge part later on. Thus, starting early is perhaps the most important step towards a brighter future. However, if you feel that financial management is not your forte and even otherwise, seeking professional help is better. You can learn a lot of tricks and trades of investments generally not visible to lay investors.

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