Last Updated on October 5, 2020 at 12:53 pm
Here is an interesting question from a young earner about to start his career: Dear Sir,
I started following your work recently. I am 21 years old now and will graduate with a BCA degree this month. My internship is getting converted to full-time next month. I will be working as a Front End Developer at a startup in Bangalore. My salary is 7.2 LPA.
I am a bit scared as I feel this is a lot of money as I used to spend less than 1000 rupees while I was in college. I want to know where to invest my money. Should I do SIPs or should I invest money in stocks? Which funds and stocks to choose? If I should do SIPs should I do weekly or monthly? Your thoughts on this would be very much appreciated.
Let me start by stating the obvious: When this article gets shared on social media, you are likely to see comments (often without reading the article), that go, “give me the extra money and I will show you how to spend it!”. After disposing of such display of extraordinary intellect, let us consider the problem at hand objectively.
First of all, even to find a teenager who spends less than Rs. 1000 a month today is rare – you are indeed rare! Let me, however, caution you that expenses will increase with age – some because of colleagues, some because of relatives and perhaps because we might tend to think: “we have arrived at the next level in life, so let us spend and borrow in accordance”.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
Soon that “excess” that you perceive as “too much” will rapidly decline. How long you are able to keep your expenses and borrowings in check will determine your ability to create wealth. Yes, that amount has to be invested prudently but first, there has to be an amount!
Regardless of the gap between income and (expenses + borrowings), the rules of investing are fairly the same – especially at 21! Here is a simple action plan for you. You will have to get yourself a term life insurance plan and health insurance (self + familY) regardless of whether your employer offers these benefits or not.
- Use your first paycheck and make your parents and rest of the family happy
- Use your second paycheck to get something for yourself (money is there to be spent after all!). Just make sure these are not high-end recurring expenses.
- From your first paycheck take 20-30% of your take-home to either another bank account or a liquid fund. This is your emergency stash. You can reduce this allocation after say 18-24 months. Increase it again suitably if you withdraw due to an emergency
- Plan for a short-term goal: Maybe a bike, a DSLR, a holiday? Allocate some money from your salary each – just open an RD for 3 months or six months for these. Life is about finding the right balance. When it comes to money the balance is needs, wants savings and investments. Most people cannot find this balance because they do not have a surplus. You do, so better find it!
- When all this is done, find out the sum of your investible surplus + mandatory retirement deduction.
- Investment surplus = income – expenses – EMI
- mandatory retirement deduction = amount deducted from salary for EPF or NPS etc (if you have this arrangement with your employer)
- The total investment made = investible surplus + mandatory retirement deduction. Ensure 50% of total investment is into equity and 50% is in fixed income (EPF or NPS{without equity}, PPF if necessary
- For the equity part, start a SIP or invest on your own each month in a NIfty index fund direct plan, growth option. If you want to invest in stocks do it with an extra amount. That is if you are investing Rs. 5000 in fixed income and Rs. 5000 in Nifty 50 index fund, do not touch this amount. Find a space in your salary to accommodate stock investing.
- Increase your investments by at least 10% each year – this is the key to wealth.
- Focus on enhancing your skills and income. Think long term for your income
- There are other steps like portfolio rebalancing, risk management etc. But those can wait a couple of years. You have the most important wealth of all – time. Do not waste an instant of it.
Wish you all the best!
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 7000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 2,500 investors and advisors use this!
Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)