New Money Making Tips For The Young - 6 Ideas
"Here are time-tested strategies that will help you invest your money just the way experts do."
Sure To Make Money Young!
Most young people today don't know how to manage money.That's mainly because they belong to the first generation of young Investors with lot of disposable income.Making money is one thing, but managing it is another.I took a small survey with my relative who are in the field and read some article about investing and came up to some points.These time-tested strategies will help you invest your money just the way experts do.
RULE 1 : START INVESTING MONEY EARLY
The day you start earning is the day you must start investing.Thats when you have few financial responsibilities and plenty of time on your side.Once you have children by 30, responsibilities and expenses kick in and that's the toughest time for most young people.But investing part of your earnings from the start gives you an advantage of at least five years.
What does " time on your side" mean? Time is money.Be it debt or equity, compound interest works only with time.Take a safe, tax-free Public Provident Fund(PPF) account where you're allowed to invest upto Rs70,000 a year at 8% interest.Starting late at age 40 and investing Rs70,000 a year till you retire at 60, will give you 37.85 lakhs.But if you started at 25, soon after you started working and invested Rs70,000 annually until you retired, you'd have Rs1.4 crores , although you've invested just Rs24.5 lakhs - only 10.5 lakhs more than someone who started at 40.
That's the magic of compounding- more time, much more money.
With improving healthcare,today's young people can expect to live longer than previous generations.This means a longer retirement.So get the time you now have on your side to work and start investing as early as possible.
RULE 2: OVER TIME, EQUITY INVESTMENTS GIVE THE BEST RETURNS FOR YOUR MONEY
I could find from the internet that from one of the recent surveys by Market Analysis & Consumer Research Organisation (MACRO) it was found that only 19% of young indians have invested in equity.In fact, 74% perceive it as the most risky investment.
This is because most people dont understand equity shares.Actually the younger you are, the more you should invest in equity.On average the stock markets have a good compounded return over the past two decades.So with time on your side , your returns , if you stayed invested over two or three decades, could be phenomenal.Young people should start investing through diversified equity mutual funds.Buy into an established scheme that has a good performance record.
What about buying stocks directly? You need more knowledge and , preferably , at least Rs50,000 to start with several companies and sectors to reduce your risk.But an equity mutual fund scheme does that with a fairly small amount for you.At some stage, you must also read up, study and gradually buy stocks directly.It's a great learning experience, since any serious stock investor must read a lot to stay ahead.But, whether directly or through mutual funds, the important thing is to get a large portion of your investments into equity as early as possible.
RULE 3: DON'T INVEST MONEY JUST TO SAVE TAXES
Save money and invest it to meet your financial goals.Our income tax laws are so well-meaning that we save on taxes while taking care of most of our financial responsibilities: among them, taking home or educational loans, paying rent, life and medical insurance premiums, school fees, saving for retirement through PPF or your company's EPF.
But we've grown an up era of super-tax rates- the highest was about 98% including surcharge!That generation needed to avoid paying taxes first and do everything else after that.But today's tax rates are reasonable and you need to think about investing.Invest to grow your net worth and meet your financial goals first.If that saves you taxes too - great!
"If you have credit card debt, get rid of that first before you make any further investments.Its wise to take personal loan at a much lower rate of interest to pay off the expensive credit card outstanding."
6 Rules To Make Money
- START INVESTING EARLY
- OVER TIME, EQUITY INVESTEMENTS GIVE THE BEST RETURNS
- DONT INVEST JUST TO SAVE TAXES
- TREAT INSURANCE AND INVESTMENT SEPERATELY
- CREDIT CARD DEBIT IS EXPENSIVE
- GET PROPER ADVICE- AND EDUCATE YOURSELF
RULE 4: TREAT INSURANCE MONEY AND INVESTMENT MONEY SEPERATELY
In the same survey i mentioned before an overwhelming 90% of young Indians surveyed took life insurance, 94% thought of insurance as investment.While it's a fact that insurance has big benifits, all the financial planners we consulted disagreed with the over-whelming number of young people who think of life insurance as an investment.There's a huge lack of understanding and knowledge about insurance.Man take life covers only because they're clueless about it,because there may be an equally clueless colleague to advise you, and because there's always a convenient person at hand to sell it to you.
Young employees often start talking it to avoid tax being deducted from their salaries, and not because they require a life cover at all.But how do you decide? Insurance must be bought to only give your dependents financial certainity.If you died, your family will suffer two kinds of losses: emotional and financial.You can't replace the emotional loss, but you can certainly replace the financial loss with adequate life insurance.
So, what's the best insurance plan?All the planners I consulted suggests "term" insurance because, unlike unit-linked plans, they offer financial certainity at the very lowest cost.Unit-linked plans invest part of your money into debt and/or equity and hence your returns are dependent on market conditions.But they're highly unlikely to match the returns you'd get from taking term insurance and using the money you save to by good stocks,ESS, or a diversified mutual fund yourself.This way you protect your dependents with a much larger, more certain life cover and grow your own wealth too."You minimize cost and maximize benefits ," as Wonderland's Shanbhag puts it.
RULE 5: CREDIT CARD DEBIT IS EXPENSIVE THAN YOU THINK
Inflations has reduced from double digits not long ago to about 4% today.So loans,too, became much cheaper- but with one major exception:credit cards.Most credit cars charge you up to 2.95% interest per month - tha's 42% per year!
Credit cards are indeed convenient and they don't charge you an interest if you pay all your dues every month.But they make their profits mainly from people who aren't so disciplined- those who "revolve" credit and may pay as lttle as the minimum 5% of dues each month.But see how costly that can be: If you owed Rs20,000 on your card and paid only the minimum 5%, you'll take over 11 years to pay it off- after paying about Rs24,000 in interest! And while you revolve your credit,you have to pay high interest on every new purchase too.
This is how the credi card business operates: Every time you make a sizable purchase of , say , Rs5000 , they call or SMS and ask you to pay it bak in monthly installments.Thay looks easy, and you agree without considering the huge interest rate.You think : Why not? This way I can spend even more!But most people doesn't realize the disaster that looms until they are in over their heads and drowning in debt.
If you have credit card debt, get rid of that first before you make any further investments.Its wise to take personal loan at a much lower rate of interest to pay off the expensive credit card outstanding.
RULE 6: GET PROPER ADVICE AND EDUCATE YOURSELFABOUT NEW MONEY MAKING STRATEGIES
Investing fruitfully is all about education.Many young people, even those who are well-read, ignore the financial papers.So they don't get to learn about investments or money.Many tend to rely on insurance and mutual fund agents for advice.That can't be helped, but if you also knew enough, you'd demand more of them and ask the right questions.
Most young people tend to take advice from family members.That's why most youngsters erroneously consider insurance as their main investement product.But family memebers don't always make good financial adivisors.
Weather you take professional advice or not, you need to educate yourself about money matters and become "financially literate," as all the CFPs describe it.One must-read book is
- " The Intelligent Investor " by Benjamin Graham
- "Rich Dad,Poor Dad " by Robert T
And keep investing as well.You'll soon take charge, make your own descisions, and grow your millions.
- FPSB INIDIA
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