How to improve financial position of self before one turns 28?
The age of 28 years is important in India.
This is the age bracket at which people start planning to get married and have a family.
This is the age where building a strong financial position should become a priority.
Generally this initiative is taken by people when they are close to 40 years of age.
But the ideal age where one must start to improve ones financial position is when person is in their late 20’s.
What can be a better starting point than an age where one going a family way.
Here we will see what improvements are proposed in a 28 years old.
These improvements will build a strong financial position for the individual.
Will discuss 7 points which has potential to drastically improve ones financial health.
#1. Give your money the power of compounding
When it comes to improving ones financial position, your savings is your best bet.
One must learn to utilise the accumulated savings in the best possible way.
How to do it? Lets read more…
Starting to invest early is the best trick.
Keep investing small-small amount each month and let your investment portfolio grow bigger with time.
If one starts to invest early, the money stays invested for a long period of time.
This gives your invested money the power of compounding.
In later years, money multiplies at a much faster rate.
Anybody who have every become rich has only utilized the power of compounding more effectively to reach this target.
Advice: You can check our SIP Calculator to understand how SIP can accumulate millions.
#2. Buy your first home very early
In India, we buy home in a very later stage of life. We often fall prey to the lust of buying a big home.
But this is a mistake.
One must buy first home before one turns 30 years of age.
If one cannot afford a big house, make sure to buy at least a small 1 BHK flat.
Initially it may look like a costly affair.
But over a period of time, you will thank yourself million times that you took this step.
Buying home in twenties is perhaps the best decision one can make to improve ones financial position.
But do not stop at buying home.
Make sure that you also make regular prepayments to pay-off the home loan early.
Advice: You can check our home loan prepayment calculator to understand how prepayments can save you lakhs of money over time.
#3. Keep your family sufficiently insured
People often fail to cover ones family against probably mishaps of life.
The essential here is to buy the following insurance covers:
- Term plan.
- Medical Cover.
- Motor insurance.
The first thing one must do before one turns 28 is to buy a life insurance “term plan”.
This will give a life cover to the family in case of demise of the policy holder.
This becomes even more important if the policy holder is the main bread-earner for the family.
The second thing one must do before one turns 28 is to buy a medical insurance.
This will protect one in case of major hospitalisation expenses.
Life & medical insurance also saves tax. Hence must not be ignored.
The third thing one must do before one turns 28 is to buy motor insurance.
Advice: Buy a sufficient cover in Life insurance and medical insurance.
Motor insurance is a compulsory inclusion as per Indian motor act.
#4. Build a mammoth emergency fund
No matter how well insured is a person, there will always be uncertainties involves with life which insurance cannot cover.
Anybody who maintains an emergency fund will vouch for its utility.
I personally find my emergency fund very useful in case of the following:
- unexpected travel needs,
- small medical attentions,
- home maintenance needs,
- Miscellaneous unplanned but urgent expenses etc.
Emergencies are something which can never be planned.
They strike and we have to take care of it.
At that moment of time, we cannot afford to fall short of funds.
So how much emergency fund is sufficient?
A a rule of thumb, 3-6 months worth of monthly expenses must be in savings.
But I will say that the bigger is the emergency fund the better.
Keep adding small-small deposits to your emergency fund every 3 months.
Even if you have accumulated a million dollar in your emergency fund, still, keep adding more to it every 3 months.
Let you emergent fund become the biggest financial holding you will every have.
Advice: Know more about where to keep your emergency funds.
#5. Track all your income and expenses
This may look like a pain for majority, but this daily exercise has potential to lift your financial position like a king
It is true that not a lot people in this world can do this task regularly.
But people who are doing this, can vouch for its incomparable “positive impacts’ on their lives.
I personally can vouch for its effectiveness.
Every bit whatever I have achieved in life till today (money matters) has roots in my excel sheet.
In this sheet I budget and track all my income and expenses.
Learning to “budget and track” income/expenses is again one financial decision (like #2) which can change lives.
What is the overall objective of tracking income/expenses?
The purpose is to improve ones financial position.
Advice: How to know is ones financial position is improving or not?
For this you will have to track your net worth.
#6. Learn to buy good stocks early in life
We all want to invest in stock market, but stop at the very onset due to lack of know how.
But stock investing has potential to improve ones financial position several fold if done in a right way.
For sure stock investing is a skill that is difficult to master, but if one can start early, one gets more learning time.
In young age people can learn the art of stock investing rather well, as at this age people have more risk taking ability.
Advice: You can check our stock analysis worksheet to learn to analyse good stocks .
#7: Improve financial position by investing for retirement
Generally companies takes care to save regularly for our retirement.
But often this saving is not sufficient.
Majority retired people repent that they didn’t save enough for retirement.
This is reason why I suggest my readers to take retirement savings in their own hands.
When one starts to invest for retirement at age of 28, it means they have 32 years ahead before they retire.
Considering that this time horizon is so long, I suggest people to keep investing in diversified equity mutual fund through SIP route.
Advice: You can check our Networth Tracking Worksheet to understand if you are accumulating sufficient assets or not.
Why we want to improve our financial position?
The idea is to lead a life which is enjoyable and free of any misery.
In financial terms this goal has been referred as life with full financial freedom.
When people reach this stage of accomplishments, for them money is no longer the bottle-neck of life.
They worry about other things but not money.
One must take steps to improve ones financial position to reach a stage of financial freedom.