The moment you get handed over your first paycheck or your account gets credited with your first salary and a message pops up saying ‘Your account ending with XXXX has been credited with Rs. XXXXX’ you feel on the top of the world and within few days you hit the rock bottom. The first salary means a lot more than money, it is spent in gifting the whole family as a symbol of gratitude.
It is alright if this gifting stays limited to the first salary, imagine a scenario where the first year of your earning goes into gifts to others and more expensively, to self. During the early months and in some cases early years, people do not worry much about finances. Even the family supports their decision of spending the first few years lavishly. Seldom do we realize when this liberty develops into a habit and comes out destructively. Hence it is crucial that you develop a habit of saving right from your first salary.
Following are the three basic concepts of financial planning which are important for you to secure your money and financial future;
- THE SUPER POWER- COMPOUNDING and TIME IT TAKES
Take the name of any self-made billionaire and one thing you will find common in all; it takes time and effort to become rich. Just as you sow a seed, it takes water, light, and air for it to grow into a sapling and years to develop into a fruit-bearing tree, money also grows with time and not overnight.
The sooner you plant your financial seed, the better your returns would be. This is because in most investment avenues the power of compounding works. This powerful formula multiplies your money and grows it exponentially over a considerable period. The only aspect that needs to be taken care of is, it requires a considerable number of years to be as fruitful as it promises.
Even if there are limited resources at hand, start investing today be it Rs. 500 or Rs. 1000 per month, do it now!
- THE MONEY TERMITE- INFLATION
Like termites eat wood silently and leave only the husk to you once they are done, inflation works the same way. In the simplest words, the rise in the price of commodities is inflation. The growth of your money needs to be calculated with respect to inflation in order to get an accurate number. If you do not consider inflation while planning your financials, you are going to lose a major chunk to it.
For example, if you take the rate of inflation to be 8% p.a. and invest Rs. 10,000 in January then you will be left with only Rs. 9,200 by the year-end.
So, if you opt for an investment instrument that gives return at the rate of 8% and the inflation is also 8% then your money is just lying idle and return percentage and inflation percentage cancel out.
- THE INEVITABLE-RISK
Although the risk is portrayed very dramatically in the investment industry, it is most likely that you end up investing in avenues which come with an inborn risk. There is nothing wrong about risk-taking only it should be a calculated one.
If you wish to grow your money and create wealth, you will need to take risks. It is better that you invest in a portfolio that has a mix of instruments with high-risk, high-return equities and some fixed return instruments like FDs. The younger you are, the greater will be your risk appetite. Once you get under responsibilities and have to take care of a family, your risk appetite will keep decreasing.
Keep your life goals in vision and take risks accordingly. Do not be overly conservative during the starting years. Take some calculated risks and seek help if desired.