We list the financial tools you should equip yourself with in your 20s, so that you can reap the rewards in just a few years.
The 20s are the best decade of anyone's life. You are young, have few responsibilities and your own income! But this decade also sets the tone for your financial future. We list the money tools you must look into ASAP for a financially secure future:
* ULIP scheme. This is an absolute must for every person in their 20s who has a regular income and who may soon have to care for a family of their own. The unit linked insurance plan (ULIP) is a scheme that provides life coverage as well as market-linked returns on investment. Investing in a ULIP scheme in your 20s is a good idea because it gives you a longer window of opportunity in terms of staying invested for a longer time which lets you reap the benefits of compounding interest. The longer you are invested in the unit linked insurance scheme, the more the gains on the investment. Plus, most of the ULIP products offered by insurance companies let you decide whether you want to invest in debt or equity and even lets you switch funds, free of charge!
* Savings account. It seems like a primary and obvious step, but you would be surprised by the sheer numbers of people who don't have a savings account to their name. You may certainly share a joint savings account with your parent(s) or spouse, but it is always good to have an individual savings account into which you can stow savings every month. Make it a point to set aside your savings the moment you are paid your salary every month.
* PPF.The Public Provident Fund is a good tool for those in their 20s, for these reasons: It has a maturity period of 15 years, you can invest as low as Rs 500 per year in it, and partial withdrawals are allowed after the lock-in period of 7 years has elapsed. If you pay higher amounts in it, you make good gains on the PPF on maturity. Also, it provides tax relief under Sec 80C of the Income Tax Act, 1961.
* Fixed deposit. The best way to invest a large sum of money at your disposal, is to create a fixed deposit account. By the power of compounding, the larger the sum of money the more it earns. You can use your savings fund and create a 5-year tax saving FD out of it. You can choose to withdraw the fund after 5 years, or stay invested for more earnings for a maximum period of 10 years.
* Real estate. Since you are still quite young, now is a good time to invest in property. It might seem like a daunting task, given the fact that realty prices are quite high at the moment. But if you do not have many debts and your credit history is relatively clean, then you can take a shot at realty investment with a home loan on a small property. After a few years, you can upgrade by selling the house for a bigger one. The alternative is to stay in a rental accommodation - but you would rather pay EMIs on a home loan for a house that you own, than pay non-refundable rent for a house that belongs to someone else!