5 Reasons To Plan Finances In Your 20s
Updated: May 18
When you're in your 20s and have just started earning, financial goal planning and investments for the future may seem like a far shot.
However, there's no better time than your 20s to inculcate healthy financial habits.
In this post, we explore 5 compelling reasons why planning your finances early on could be one of your best decisions in life.
We also discuss real-world use cases on how you could reap huge benefits with effective planning and without compromising on your lifestyle needs.
In this blog, we discuss, how by planning early:
Reason #1: You can easily achieve Big goals
As you sow, so shall you reap.
Small amounts today, could turn big even before you realize it.
Saving or investing small amounts "smartly" on a monthly basis is sure to reap its fruits in the long run.
Starting early helps you get a much better grip on your big financial goals.
Let's understand how a simple financial plan can make a sea of difference.
Note that in all the examples mentioned, Inflation is accounted for in all calculations. Brace yourself for some mind-boggling calculations.
Say, you wish to buy a house in 2023.
Assume around 10 Lakhs in savings today in 2020 that you might typically invest in an FD, etc to make that 12 Lakhs for downpayment by 2023.
In 2023, you take a home loan of ₹50 Lakhs to buy a house worth ₹62 lakhs.
Without a plan, you pay an EMI of around ₹50,000 for 15 Years.
This amounts to a total of around ₹ 1.04 Cr including the loan interest.
Let's make some tweaks to this plan.
If you invest ₹20,000 per month before taking the loan till 2023, while continuing the FD, you pay a reduced EMI of just ₹40,000 for the same 15 Years.
The total cost of the house is reduced to ₹96 Lakhs.
If you invested the remaining ₹10,000 every month in a SIP it would grow to ₹45 Lakhs!
How much did planning ahead save you? Well, we leave that bit of the math to you!
Here's yet another example of your investments.
You can make such simulations and changes with ease on MoneyPlanned.
Say, you're 25 years old in 2020.
Assume you're investing ₹5,000 per month is a SIP as of now.
If you increase it by ₹500 every subsequent year.
By the time you're 55 years old, you would have earned an awesome ₹1.3 Crores.
If you start investing for the same when you're 35 years old, you would end up with ₹35 Lakhs by the time you turn 55.
That's almost a 3.7 X difference.
That's the power of starting early. That's the power of effective planning.
Reason #2: You can do more fun things with your money
Remember your bucket list from college?
Wasn't it full of exciting endeavors and adventurous activities? Of course, you bet!
Sadly, once the daily grind of life sets it, it tends to make us compromise on our dreams.
But, does it really have to? We think not!
Financial planning is worth our while when it makes our life more joyful and fun. Smart planning frees up more money for you to fulfill your dreams.
With more money in your pocket, what once seemed far-fetched becomes attainable.
A plush family vacation, a thrilling trek, a wondrous scuba dive, or anything your heart deeply desires.
We gotta live while we're still young, innit?
Reason#3: You can build a better lifestyle and future
Thinking ahead and starting small can pave way for a better future and lifestyle.
You also reap the benefits of taking a smaller loan and paying lesser interest.
Let's take the case of buying a car.
Say, you are earning ₹1 Lakh per month.
Assuming an ideal EMI for a car in the range of about ₹20,000 and a 4-year loan tenure, if you were to buy the car immediately, the maximum range of price you can look for would be around ₹ 7.7 Lakhs, and you're paying a total loan interest of ₹ 1.86 Lakhs.
If you start thinking of this 1 year before you buy the car, just by saving ₹10,000 per month you could have afforded a car worth ₹9 Lakhs for the same EMI range.
If you still opt to buy the car at ₹7.7 Lakhs, your EMI would have reduced to ₹17,000. You get an extra ₹3,000 per month that you can put to good use.
Reduced EMIs. Increased savings. Enhanced financial fitness. Elevated financial life.
You have the power to decide what you want to do with your money. All it takes is to take charge of your finances.
Reason #4: You can relax and live peacefully
Planning ahead offers clarity of how your future is going to shape up.
You get to create a set of routines that you can continue on auto-pilot to effortlessly reach all your financial goals.
This is one of the best outcomes of financial planning - a clear vision for the future, peace of mind, and the freedom to enjoy the present in a balanced way.
Reason #5: You Master your Money
As the saying goes "You are either a master of your money or a slave to it. "
Making money at an early age is an art and you need to work towards it to perfect this art.
Starting early, while you are still in your prime gives you a great head start and conditioning to follow for the rest of your life.
With the right set of habits, you become smarter about your finances and can avoid ordeals like debt traps, financial shortfalls, etc.
You can buy a better house than your unplanned peers, you can invest more wisely, and you can confidently master your financial life.
The biggest advantage you have in your 20s is obviously your age. You're young and a prosperous future awaits you at your doorstep.
All you have to do is Unlock the Door. Here's your key!
No matter the number of goals you have or the size of your goals, planning early on is going to give you an edge above others. It will help you to attain financial freedom sooner than you expected.
Get smart. Get ahead. Prosper with ease.
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