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Are you 25? Here is how to chalk out your financial plan

As a 25-year-old, you may have many dreams. Once you become financially independent and start earning, you have the urge to enjoy your money and have a good time. And why not? You have strived for this freedom. Money is to be enjoyed. However, it’s also important to think about the future and salt some money away. Life can surprise you in many ways. Your intent should be to balance your wants and needs and be prepared for life’s vagaries.

At 25, the choices you make today can significantly impact your financial future. At this stage, you have an opportunity to plant the seeds for financial success through strategic investing. Adopt good financial habits that will protect you and set you up for success. This is that phase of life when you might begin your career, get married, or even prepare to start a family. All this makes it crucial to set goals for yourself and start saving. In this article, let’s chalk out a financial blueprint that can set you on the path to wealth accumulation.

Start with budgeting 

Begin your financial planning journey with budgeting, a crucial aspect that involves the careful management of income and expenses. Evaluate your sources of income, including salary, bonuses, or any other forms. Make a list of necessary expenses and their associated costs. Segregating income and expenses gives you a clear idea of your remaining funds. Adopting a budgeting habit creates a roadmap for allocating money to various priorities, setting a strong foundation for achieving both short-term and long-term financial goals. It also helps identify areas where you can cut back or reallocate funds, fostering self-awareness crucial for informed financial decisions.

Set Your Goals

Setting financial goals at 25 lays the groundwork for an early financial journey. Define your financial aspirations and allocate a timeframe to them. Your goals can be categorized into short-term, medium-term, and long-term. Short-term goals, achievable within a few months to a couple of years, may include immediate needs. Medium-term goals, spanning two to five years, could involve significant purchases or investments. Long-term goals, requiring over five years, often include paying off debt, buying a house, or planning for retirement.

Begin Your Saving Journey

After defining your financial goals, focus on saving. Knowing your goals provides clarity on the required savings. Whether it’s buying a home, starting a family, or travelling, your 20s are a time to plan for future aspirations. Saving allocates funds towards these goals, making them more achievable. Start by opening a savings account and setting aside a portion of your income, ideally 20% or more, depending on your disposable income. Consider options like savings accounts, fixed deposits, or recurring deposits for your savings.

Begin Your Investment Journey

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While savings lay the foundation of your financial life, investing strengthens it, helping to create wealth for various aspirations. A savings account, though simple, may not offer sufficient returns to meet your financial objectives. Invest in stocks, bonds, real estate, and commodities to achieve higher returns and grow your wealth. Index funds or mutual funds SIPs are the ideal way to start your investment journey for any goal.

Build An Emergency Fund

An emergency fund acts as a financial safety net for unexpected situations like job loss or sudden hospitalization. Ideally, this fund should be three to six times your monthly income, providing support during various emergencies. If facing higher risks, consider increasing this fund.

Besides the above steps, you may buy an insurance plan after assessing your health and family needs. If you are the sole breadwinner of your family, you may opt for a term insurance plan to protect your family financially in the unfortunate event of your death. Likewise, if there is a history of medical issues, you may buy health insurance to protect your savings.

The writer is CEO, BankBazaar.com

© The Indian Express Pvt Ltd

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