Financial planning is important for people of all ages. Some people in their early and even late twenties believe that the process of financial planning should be implemented when a person is in their late thirties or early forties. However, these people are wrong.
The process of financial planning should start at early twenties or when a person starts working and earning. There are numerous tips and strategies available on financial planning however, I will provide some of my own strategies which I am currently using, successfully.
The first tip is that the process of financial planning only begins when a person thinks that he or she needs to save, prepare budgets, invest in assets or financial products, pay for college or just be rich! A person must have an aim for example, to own a house at the age of thirty or to own a flashy car. Once a person has determined their goals or aims then, preparing a budget is very important. If a person is fully committed to his or her goals, that person will make a conservative budget i.e., a budget which tries to save the most and helps to earn the most . At the age of twenties, there are a lot of distractions in a persons life such as going out to clubs and pubs two or three nights a week and using money like it was water. Preparing a budget will help people to reduce or eliminate distractions that cause them to spend unnecessarily.
Once a budget has been prepared, the hardest part will be follow it. Most people are not able to live up to their budget and fail at this stage. In order to succeed at this stage, one must have the will power and should have set their mind on their goal and nothing else.
If a budget is implemented and followed, there will be some savings. The question will be what to do with the savings. One good thing about being in the twenties is that you have a long way to go and taking risks for higher monetary returns seems reasonable as you can earn the money you lose later, say, when you in your late twenties or even in a month or so. This stage of financial planning will involve decisions as to what to do with the savings. There are always different classes of assets available in the various financial markets for example, cash assets such as short-term deposits, equity assets such as company shares and property investments. Depending on your savings, your acceptable level of risk and your expected monetary returns, you can invest in a particular asset. For example, if you do not like to take risks and do not have much savings, you can invest in a term deposit account as it is risk free and pays higher returns than savings accounts. On the other hand, if you are a type of person who loves to take risks and would like higher returns, you can invest in listed company shares, however, this will require you to acquire some knowledge about stock markets. Returns from stock markets are usually the highest when compared to other asset classes. As you are in your twenties, you should hold the company shares to grow in value i.e., you can have a long term perspective, get the dividends and leave share prices to gradually increase. When the prices are high enough, you can sell the shares and make a good capital gain. This money can then be used to invest further and earn more.
Starting to invest in your twenties is very important as it can help you plan your retirement well and can improve a persons standard of living.
Therefore, the major tips I have highlighted above is the preparing and following of a budget as it enables you to save and investing the savings is very important as it provides you with more returns and makes your money work for you and grow.