- Warren Buffet
Fresh coming out of the college, most youngsters dream of spending their earnings in plethora of ways. Some want to buy the most expensive things, some give it to their parents, some in charity and rest of them while it away in partying.
We interviewed some youngsters working for MNCs and tried figuring out how they think about making their finances stable. Vishal, a man in his early twenties from Ahmedabad, shared, “My take-home is around 24k. When I started earning, my dad took a home loan of 10 Lakhs. Of course, we had to chip in some of our own money. Of the total home loan EMI, I pay an EMI of 16k per month. I have been doing this since last one year and within some years I will completely own that house.” This can turn out to be a very good decision for Vishal in longer run. It has kept his hands tight while allowing him to enjoy his basic needs. When he will have to bear the brunt of the family expenses, he would have been almost done with his home loan.
We had another youngster named Bhavin from Mumbai who shared a similar experience, “My take-home was 20k. I desperately wanted to do an MBA after a two year stint. Buying a house was not an option as I won’t be able to pay EMI when I would be pursuing MBA after two years. So I decided to invest in gold. I used to buy gold worth 12K every month; although this was a paltry sum given gold is a soaring commodity. After two and a half years when I went for my MBA, I could pay all my tuition fees by myself by selling the gold.” Gold has shown very good returns over the long term and is a hedge against equity. The strategic and traditional importance of Gold in our country makes it even more glittery and attractive.
We all would like to have financial freedom, buy the most extravagant things, and enjoy holidays and luxury. But there is always a string attached to it. The string is to first make the foundation right. Before going for luxuries, we should make sure that we should never run out of the finance needed for basic necessities in life. Sharing a heartening incident, Chandan says, “When I got the job in 2007 at 35K per month, I was happy. I had bought electronic items and other luxuries on EMI. It was all going good until 2008 came with its recessionary jaws. I lost my job and I was yet to pay for almost all of the items. My world came crashing down. Finally, after a struggle of 2 months, I managed a job with 20k. I struggled for 2 more years haggling for every penny and paying up my bills. But I learnt a big lesson. Luxuries at EMI are a big no. Whenever you are supposed to pay an EMI, it should not be more than 40% of your salary”. Before incurring expenses or making investments, analyse to find out if you actually need it. Go ahead only if you think it is of utmost importance to you at this stage of your life.
Many youngsters coming from humble backgrounds go for fixed deposits (FD) in the bank. It is surely a safe option but not a preferable one considering the current inflation rate. Diversification of your portfolio is very important. Equities provide the best returns over the long term. However, do you research well before you invest in the equity market. Mutual funds are a better bet compared to direct equity. Start investing with smaller chunks, so that even if you lose you do not regret. As you start getting a hang of it, increment the investment. The increase in investment should directly be proportional to your increase in earnings. Never fall for “Double or triple in a year” schemes. Had that been possible, every second man in the street would have been the world’s richest.
Life is like a cricket match. One who plays too safe can never score a century and one who plays too risky bears the peril of getting knocked down. Sensibility is proven in playing safe in tight situation and taking lofty shots in boom. It all comes with experience and time.