Friends! Plan Your Finances for the Years Ahead

I’ve written this article especially for my final year friends, who’ll start earning in 2011. The year marks an important transformation in their lives and a rush of adrenalin might tempt them to spend extravagantly, jeopardizing the gains they could have made by investing early and wisely. With prudence however, they can definitely brighten future financial prospects for themselves as well as their families.

 

No matter how prosperous someone is, it always pays to save and invest well. Many people might argue about the need to plan for future so early in the career. To them I would say, “The need to save today is to secure tomorrow, to meet contingencies, and above all to pursue dreams, passions and hobbies.” In western world, people desire to retire from active work in mid 40s, so they plan their finances according to it. Although, it is not a common trend here at present; sooner or later it will be. 

The golden rule of financial planning is, ‘be wise and start early.’ One needs to figure out, what corpus, he would like to build in 20-30 years. It varies from person to person, depending on lifestyle and number of dependents one has. SIPs (Systematic Investment Plans) are ideally suited for it. They allow people to regularly invest a portion of their income to generate return and build corpus. One can invest either a fixed amount every year or increase his investments over a period of time as his salary increases. 

Keeping the hard earned money in bank deposits won’t be a wise act as inflation will eat it away and real rate of return (Deposit rate-inflation) will be negative.

For youngsters, the time is also ripe to be a part of share market.  Liberalization and continuous reforms in the last two decades have made the share markets friendly for the retail investors. The markets have doubled in the last two years and returns have been in the excess of 25 percent. Share markets are known to reward long term investors handsomely. So, one should aim to be in the game for longer time to reap better benefits. But, before investing in share market, it is strongly advised to consult a financial expert and be prudent and pragmatic.

For risk averse people, there are still other ways to generate good returns. Mutual funds and ULIPs are among them. These products invest their asset in share markets and bond markets under the guidance of capable managers. Both are equally good, but since ULIPs offer better commission to the agents, they are better marketed by the agents. 

Apart from these, one has to also look at the income tax aspect of investment. The government has also proposed to implement Direct Tax Code from 2012 and it’ll bring sweeping changes in the tax laws of this country. This should also be kept in mind while making investment decisions this year.

It is indisputable that a very bright future is waiting for the people, who would be joining industry this year and they can take it to an altogether new level through prudent financial decisions right at the start of their career. It is rightly said ‘Well begun is half done.’