If your parents are like me, you have been told, ‘Beta, get a job after graduation and stay loyal to that company until you retire.’ And the only financial advice you got was, ‘How to write a check’ With this Golden Knowledge. So lets how it becomes possible and how I became Financially Independent at 25.
At the age of 21, I became a Software Engineer at an I.T company that was literally paying me peanuts. The money was bad, the salary hike was almost zero, work was pathetic and my growth was stagnant. Every month my salary would barely survive the end of the month. But a girl needs money To study further, to travel, to save for emergencies, to buy a house, to save for retirement. But most importantly, I needed money so that I can make my own life decisions without having to depend on someone else.
We all talk about gender equality. But it will come only when we first become financially independent. And trust me, a 9 to 7 job is not going to get you that independence. And yet, I am the only one in my family who bought a house before turning 25. And for that, you don’t need to work for 10 hours every day You need to make smart financial decisions. And trust me, this is something that every girl should know. Because, not only will it help your career but it also changes the dynamics of the relationships you are in. Be it mother, daughter or wife. Because you will not be treated as a dependent anymore.
By the end of this post, I will tell you even if you have more responsibilities, low income, debt, taxes, how you can start investing now. Because it’s not about how much money you make. It’s about what you do with it. So Let’s begin.
How to Be Financially Independent at 25?
So, you can spend money on 2 things Assets and Liabilities.
Assets and Liabilities
Liabilities are something that takes money away from you. Like for example, if you have a car you have to pay for its gas, it’s maintenance. It’s not making you any money. So, that’s a liability. On the other hand, assets make money for you. For example, if you have a small apartment and people are paying you rent every month – that’s an asset. If you write a blog, article or make a YouTube video that’s generating you revenue even after years of you creating it – that’s an asset. Mutual Funds, Stocks, even Solar Panels that you install, because they will save you electricity in the future. All of these are assets.
If you want to be financially independent you need to have more assets than liabilities. Sure you can spend money on some liabilities like an iPhone or an iPad but before that, you should first have more money coming in than going out. So to ensure that you have more money coming in, today we are going to discuss, different investment options available. And by the end of this video, as a bonus, I’ll also tell you how to divide your money into these investment options so that you get the best returns and eventually your ‘Apna Ghar’.
Saving Options can be divided into 2 categories. Short-Term (0 to 5 Years) and Long Term (5+ Years). We are going to analyze each saving option based on 3 parameters. Then how soon can you get that money from that investment, is called liquidity? Let’s start with Short-Term Options.
Short-Term option Investment Options
Now, the first Short-Term option to save is obviously in the form of Cash. Any notes that you see lying around and is yours, save it. Cash is available whenever you want to use them, so that makes its liquidity, HIGH. The risk is LOW. It’s not zero because somebody can still steal your cash. And returns are also ZERO. Why? Because if you leave your cash in your purse for 5 years, it’s not going to grow by itself. So that makes returns, Zero. Fixed Deposit, is when you give the bank, a certain amount for a Fixed Period. But at a higher interest rate than a Savings Account. For example, SBI gives somewhere around 4% for Savings Account but for a Fixed Deposit, it ranges anywhere between 5.75% to 6.75%. And it depends on how long are you giving your money for. Are you giving it for 7 Days, 6 Months, 1 Year? Now, coming to its parameters. Liquidity is HIGH. Because even if you don’t want to wait for those 7 days, 6 months or 1 Year you can withdraw your money anytime you want. The risk is ZERO. Because your money is safe with the bank and the bank has to return your money back, along with interest. And returns are LOW. Because the interest rate is around 5% to 7%. But remember, if you withdraw your money before your Lock-Down Period then the bank will return your money at a slightly lesser interest rate.
Now there is something called as a ‘Recurring Deposit’ which is just like a Fixed Deposit. The only difference is, in Fixed Deposit, you put money just once. But in Recurring Deposit, you put it every month. For example, if you have decided on Rs. 500/-. Then Rs. 500/- every month from your Savings Account will directly move to your Recurring Deposit amount, which is actually a great option because it instills Financial Discipline in you. You know that every month you have to save this much.
Now before we move on to Long-Term Saving Options, let’s talk about something that’s even more important and that’s Health Insurance. This is the first thing that you should invest in because frankly, life is unpredictable. If tomorrow God-Forbid, you have an accident or you are recovering from an ailment then you don’t want to beg for money and spend the rest of your life paying that debt. Which is why a Medical Insurance becomes extremely important. If your company doesn’t provide it, then get one for yourself and your family. You have to pay around Rs. 5000 to Rs. 7000 every year, which is like nothing. And you will be insured a sum of 4-5 Lakhs to cover your Medical Bills, depending on the policy you take.
Long-Term Investment options
Moving on. So far we have discussed the Short-Term investment options where you work for money and then save it. But if you save for long-term, your money will start working for you. Here are your Long-Term Investment options. What are Mutual Funds? Mutual Funds collects money from people like us. Rs. 500/- from me, Rs. 500/- from you and creates a ‘Money Pool’. A fund manager then uses this ‘Pool’ to invest in Stocks, Bonds, Assets. You don’t have to worry about where it is being invested because the Fund Manager takes care of it for a commission of 1% to 2%. Now if you want to invest Long-Term this is a great option because instead of sitting idle, your money is actually doing something. You can either invest in Mutual Funds just once or you can choose a SIP – Systematic Investment Plan where every month a fixed amount, say Rs. 500/- will move from your Bank Account to Mutual Funds. Coming to its parameters. Liquidity is MEDIUM because it takes around 1-3 days for you to get your money back from Mutual Funds. The risk is MEDIUM. ‘Mutual Funds are subject to market risk. Read the offer document carefully before investing’, is correct. Mutual Funds come with a little bit of risk. But as long as you do your research and invest in Long-Term, you should be fine. And returns are also MEDIUM. On an average, in the past, returns have been around 12% to 14%.
If you want to know more about Mutual Funds, check out MutualFundsSahiHai.com
We hope you understand that How you can Be Financially Independent at 25. Let us know if you have any query in the comment section below.