‘People try to repay the BIGGEST LOAN first. Actually, you should repay the most expensive loan first.’
Financial planning expert P V Subramanyam — author of You Can Be Rich Too: With Goal Based Investing, Get Rich A Wealth Prescription For Doctors and Retire Rich: Invest Rs 40 A Day, highlights simple money management tips the youth must follow to save and grow their money in 2023.
How much of your salary should you save every month?
There is no one answer to how much one can save from her/his salary.
A young person supporting a big family will be able to save much lesser than a person who is living with rich parents who are willing to spend for everything.
However difficult it is, everyone should try to save 10 per cent for retirement and 15 per cent for other purposes.
Also for a person with dependents she/he may need to take adequate medical and life insurance.
Are bank fixed deposits a wiser way to save and invest?
Any investment which creates current income should be avoided. It should be a product which allows income to be created AS CAPITAL GAINS. So mutual funds are useful.
In case of equity mutual funds, the growth option lets you decide when you want to pay the 10 per cent capital gains tax and not the current rate of tax.
So NO FIXED DEPOSITS — of banks or corporates.
For debt mutual funds, stick to floating rate funds or arbitrage funds.
What part of your salary should you invest and where?
This depends on your goals. Those who need it in less than 12 months should invest in ultra short-term funds.
The money that you need in 7 years or more should be invested in equity mutual funds.
The best one can do is to invest in a good financial adviser or spend more time learning about investments. Later on, you can choose which funds, what characteristics, etc.
How to work towards repaying/pre-paying loans if you have any?
People try to repay the BIGGEST LOAN first. Actually, you should repay the most expensive loan first.
Go and find out which is the most expensive loan and repay it ASAP.
Even paying 14 EMIs instead of 12 in a year will have an impact on the loan. In fact, the more additional EMIs you pay in a year will go a long way in saving money for you.
After retiring all your loans when the only loan that you are left with is the Home Mortgage, start investing AGGRESSIVELY. The investments are likely to give you better returns than the cost of your borrowing.
How should you spend credit cards smartly/wisely?
Credit cards are very EXPENSIVE in the long run. They lure you with great offers, that serves as bait and you fall for it hook line and sinker!
A credit card is NOT a source of income and should be used ONLY as a tool to aggregate your expenses, and not to play games.
Having said that, if you have two credit cards you should have one with a due date of say 5th of the month and the other with 20th of the month. So if you are spending on the 6th of the month you should spend on your card where you get one full month (or 45 days) credit.
It is a tough game, and one slip can take away all the effort made!
Books you must read to improve your knowledge of investing and financial planning…
A very long list indeed… Read ‘Best books to read’ on my blog (external link). That will help.
Your best money advice for the young…
You should write your will on the day you register a property document; it has nothing to do with your age.
As told to Prasanna D Zore/Rediff.com
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