Turning 25 is seen as an exciting and important milestone for most young adults. It’s a time when you can be free, chase your dreams and try to discover what you are most interested in and at the risk of using a cliché, passionate about. You have relatively fewer liabilities and naturally, want to make the most of this time before real world responsibilities like mortgages and retirement planning weight you down.
But before you know it, it’s gone and unless you were a really smart planner right from high school (I wasn’t), you’re most likely saddled with considerable debt (mostly student loans) and with little to no clue about good investments or how to go about buying a house.
How do you still stay on track to save for your dreams and achieve your financial goals then? Everyone has their own gameplans, but for me, there are a few tried and tested ways that work and more importantly, keep me committed to my long-term investment goals.
1) Start early
You know the saying it’s never too late to start and in this case, it’s never too early for your first investment. Too many times, people postpone their investments, thinking there’s plenty of time to do it later, now’s the time to have fun, or that they don’t have enough money. Like most other college students, I found a part-time job, as a freelance writer and wrote for close to 6 years before thinking about making my first investment.
I always thought I didn’t have enough money, or that you needed a bigger amount to start, which was not true at all. There are a lot of investing platforms operating in most countries, which let you start investing for as little as GBP 10, or approximately INR 1000.
However, not all of these are above board and you do need to research them thoroughly to check their credibility and find something that suits your needs. Had I started 6 years ago, I might have had enough for a few holidays at least by now.
2) Think about retirement as soon as you start earning
A company’s pension and retirement policy becomes one of the things freshers often overlook when they first join, which is a huge mistake as they have so much to offer. Most companies will match your pension contribution equally, if not more, which although not an investment in the traditional sense, becomes one of the best safeguards for the future.
Although I was quite unconcerned with pension deductions at my first job, insouciantly letting the company decide for me, by the time I joined my next company, I made sure I smartened up. I adjusted the figure according to my goals and started planning much more actively.
3) If you want to buy a house/start a business/ retire early etc, start now
For a lot of people, buying a house isn’t really a goal but for those who do want to, it’s a good idea to have at least a ballpark idea of what kind of house, where, when and approximately how much you think it might cost. These don’t have to be written in stone, of course, but an approximate idea will definitely give you a head start on how much you may have to save for the deposit and how to go about it.
The same goes for any big goal you may have, like starting a business or retiring early, which requires a significant capital base. I for one, would like to travel all over the world, which has pushed me to break down my finances to plan small, frequent trips, once the pandemic abates, instead of one around-the-world splurge.
Things such as how much the down payment on a house may be, or how much investment a business will require out of pocket, before external financing may help you decide which investment strategies and products are right for you.
4) Financial literacy
I have to admit, it took me a really long time before I got into the habit of keeping up with stock markets, financial news, commodities and so on, on a daily basis. I actually started doing so only when my job required me to.
However, developing this habit much earlier on, in my teens would have helped me immensely, as by now I would have gotten a much more in-depth feel of the market. Understanding how the various indices work, what factors contribute to volatility and how to read market sentiment, are key to knowing how to make the market work for you.
The same also goes for researching companies and stocks, knowing your financial ratios, how much leverage is good, industry metrics and how to read financial statements correctly.
Keeping up with current, business and financial news will also give you an edge as you start understanding the effects of macroeconomic and political factors on the market as well. There are loads of great investment books out there too about niche topics such as sideways markets and value investing, which have definitely fanned my interest in offbeat investment strategies.
5) Don’t forget your savings
While it’s a good idea to study the markets and invest early, it’s also good to remember that markets can be pretty volatile, and in the short run at least, you may end up losing more than you anticipated, before starting to make profits.
Some of the best investments are also those which yield high returns only when held for a long time, if not forever, as Warren Buffet suggests.
In times of need, therefore, it makes more sense to have a nest egg of savings that you can rely on to fund short-term liquidity needs, rather than dip into your investments. A good level of savings, which varies according to your needs will also help act as a buffer against market fluctuations and short-term losses.
Although it took me a while, I’ve come to realise how important maintaining a healthy balance between your savings and investments now are.
Today, I can safely say that I’m much better informed about financial markets and more aware of my investment goals and strategies than I was five years ago. However, in hindsight if I had picked up these habits a little earlier, I might have covered a lot more ground, travel-wise by now.