“I would rather enjoy with my money now than save it to enjoy at a later date,” professed Anuj Arora (name changed to protect identity), a few days back.
A young man in his mid-twenties, Anuj has shifted to Mumbai from Delhi after taking up a job. He had approached me for some guidance on admission in B-Schools. Among other things he shared with me how his expenses had increased after he had taken up the job and shifted base. He also told me that whenever he called up his parents, they would invariably advise him to start investing.
I said it was a very sound advice and suggested that he should take it seriously. That is when he told me that he would rather enjoy with his money now than save it for later, and added that most people of his age group think in a similar way. When I further probed on how he would fund for his MBA expense, he retorted with an air of nonchalance that his parents would sponsor him.
For many young people like Anuj, investing may seem like a very uninteresting proposition; so they defer it. But in doing so they tend to miss out on the opportunity to have financial freedom later in life when they would need to incur bigger expenses.
What I said to him goes as follows, and this generally holds good for all young people.
Relationship between Income and Expenses
When you are in your teens or even in your earlier twenties managing expenses is quite simple. All you do is to call up your dad or mom and ask them to send you money. But as you grow up the degree of difficulty in managing expenses also goes up. Your paycheck may get fatter each year, yet your expenses will also somehow always seem to shoot up. You will need to pay off your bills, rent, etc. EMIs will start from the time you take a loan to purchase a car.
As you take another loan to purchase your house, more EMI gets deducted from your salary. When you get married, your expenses increase further, and when you have children your expenses hit the roof. You first want to send your children to the best school, then to the best college and you want to ensure that your family in good health. You aspire for a bigger house, a bigger car, trendy dressing, vacations, fine dining etc. All of these cost money. And yes, prices also go up each year!
Overall, as your income increases so do your expenses, as you tend to spend more towards improving your standard of living, and you may also have financial contingencies to deal with.
Benefits of Investing Early
A rupee saved is worth more than a rupee spent. When you invest your money, you are making your money work for you. The earlier you start investing, the greater are the potential gains due to compounding.
By the time you are in your 30s, you are settled to a career choice. You should then consider investing in a long-term investment plan to achieve the financial flexibility to fulfil your dreams like travelling or purchasing your house, or a car etc.
If you have made up the mind to invest but are not sure where to invest, you can make use of a Guided Portfolio.
A Guided Portfolio is an advised portfolio by Edelweiss that helps you to decide on an investment strategy based on your age and risk profile. By allocating your investment amount in an optimal manner across asset classes (Equity and Debt). It selects suitable mutual funds for you. Once schemes are selected, you can execute the transaction in one click. You can monitor your portfolio performance on a regular basis.
Remember that the benefits of starting to invest early are enormous. Time proves to be your biggest ally as you have 2- 3 decades to take advantage of market opportunities and you also have the time to recover if something were to go wrong. By taking advantage of time, you can get a head start on saving for your future and take the steps forward towards an improved quality of life in the long run.
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