Wednesday, June 3, 2009


Financial planning is important for people of all age, young or old ,but it assumes extra significance for young people because it can make a huge difference to their finances, if done in the right way. There are many elements involved in financial planning , but, here I am listing down few broad steps which every young person must take in order to have a healthy financial position over a period of time.
1. Start Saving early - One of the most common mistakes all young person commit with respect to their financial planning is that they do not start saving early enough. Most of them think that since they only have started earning now , its time for them to enjoy with their money. While there is no harm in enjoying a bit, one must also ensure that he/she saves a bit out of his /her income every month. Saving is a habit and the earlier one develops it the better it is for him.
2.Try and save every penny paid in tax- One must also ensure that he saves every possible penny of tax that can be saved . Tax can be saved by investing in tax saving instruments like ELSS,ULIP,PPF , NSC ,etc. This will not only ensure that your tax outflow will be less but will also get your "saving habit" going.
3.Invest for retirement now - Young age has its own charm and it is hard to imagine a young person worrying too much about old age or life post retirement. But, a prudent young man will do so and he will also start building his retirement nest from day one. The key to healthy retirement corpus is starting early with investing.
4. Give equities a chance - Equity is known to give far superior returns over any other instrument over along period of time , but, can be risky in short term. Still there are quite a few youngsters who are not very keen at equities and are either totally out of equities or are under invested in it. Since youngsters have time on their side , investment in equity is a must for them . This will help them reap the benefits of higher returns in long term. How much should one invest in equities? The answer is 100 - age = % of your investment in equities. So , if your age is 32 years, then you must invest 68% of your overall investible surplus in equities and rest in debt.
5.Diversify your investment - One can never overemphasise the importance of diversification in one's portfolio. One must strive to have a diversified portfolio comprising of well diversified equity mutual funds, direct equity,balanced mutual funds,debt mutual funds, FD,PPF, gold,real estate etc . Diversification will ensure that your portfolio returns are not adversely affected by downturn or bad performance in one of the funds or sectors.
6.Take Professional help- If you do not understand finance and investments yourself to the extent of making an informed decision regarding it, I would suggest consult professionals. Do not make your investment decisions based on tips or advice from friends. Investing in mutual funds is a good way of taking professional help since mutual funds are managed by professional fund managers. Also you may consider taking help from a Certified Financial Planner.
7. Buy Life Insurance - As a young person , you have your whole life ahead where you will be earning and as such you need to have a good life insurance policy for yourself . Buy any good term plan having life cover of at least 10 times your annual income. This will ensure that in the unfortunate event of you not being around tomorrow, your dependents are taken care of.
8.Never withdraw from your Provident Fund - As a thumb rule, you must never withdraw from provident fund. Even when you change jobs, get the PF transferred to the new employer. Withdrawing the PF money will result in you loosing the tax benefit and the whole money will be paid post tax deduction. Also PF is meant for retirement and as such treat it that way. it is kind of forced saving towards your retirement corpus and government is helping you in doing this by giving tax breaks on it. Use it for your benefit.
9. Have an emergency Fund - You must also have an emergency fund to take care of any unforeseen expenditure or circumstances like job loss etc. Have at least 6 months of monthly expenses as your emergency fund.
10. Do not take loans which you do not need - You must never take a loan which you do not "really" need. Loans like Sales finance loan for buying LCD TV, Laptop or taking personal loan to fund a holiday etc must be avoided at all costs. Debt free life is priceless and you must not let this go for things which you can manage without. Buy LCD TV or laptop or holiday trip but out of savings and not on credit.


  1. Hi,


    Here is an useful free financial advice.

    Savings should come first before spending, and it should take first claim on your income. Saving what is left after spending does not work. Saving should rank as high as staple needs like rental, food, and other commitments and certainly above luxuries such as holidays, and entertainment. If you are unable to do this, you have to adjust your lifestyle. Acquire assets and not liabilities.

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