At 21 my salary is too much! How should I invest?

Published: October 5, 2020 at 12:45 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”.

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!

Get free money management solutions delivered to your mailbox! Subscribe to get posts via email!

    🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥

    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.

    1. Use your first paycheck and make your parents and rest of the family happy
    2. 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.
    3. 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
    4. 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!
    5. 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)
    6. 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
    7. 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.
    8. Increase your investments by at least 10% each year – this is the key to wealth.
    9. Focus on enhancing your skills and income. Think long term for your income
    10. 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!


    Do share this article with your friends using the buttons below.

    🔥Enjoy massive discounts on our courses and robo-advisory tool! 🔥
    Use our Robo-advisory Excel Tool for a start-to-finish financial plan! More than 1000 investors and advisors use this!
    New Tool! => Track your mutual funds and stocks investments with this Google Sheet!
    • Follow us on Google News.
    • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
    • Join our YouTube Community and explore more than 1000 videos!
    • Have a question? Subscribe to our newsletter with this form.
    • 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.

    Get free money management solutions delivered to your mailbox! Subscribe to get posts via email!

      Explore the site! Search among our 2000+ articles for information and insight!

      About The Author

      Pattabiraman editor freefincalDr 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 nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or 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 3000 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 what 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 you 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!
      Both boy and girl version covers of Chinchu gets a superpower
      Both boy and girl version covers of Chinchu gets a superpower.
      Most investor problems can be traced to a lack of informed decision-making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
      Feedback from a young reader after reading Chinchu gets a Superpower (small version)
      Feedback from a young reader after reading Chinchu gets a Superpower!
      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 for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
      Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or you buy the new 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 from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only 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
      Our publications

      You Can Be Rich Too with Goal-Based Investing

      You can be rich too with goal based investingPublished 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 Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis 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

      Travel-Training-Kit-Cover-new This is an in-depth dive analysis 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)