Financial planners say that youth need to change their habits when their income is less. For these people, saving before spending is a better way.
It is often seen that people who earn less than Rs 10 lakh annually, despite saving, struggle to meet their tax saving investments under section 80C. At the end of the year, they keep scrambling for money to pay insurance premiums, keeping their PPF account active. This happens because most of them lack the discipline to save. They always try to save money after meeting their essential expenses like rent, electricity, transportation, telecom and lifestyle expenses.
Financial planners say that young earners need to change their thinking when their income is low. It is important for these people to save before spending. After that it should be spent. You should save 20% of your income regularly.
Save 20% from income
To do this, do an Electronic Clearing Service (ECS) from your salary account, which will transfer 20 per cent of your take-home salary to a 1-year Recurring Deposit (RD) with the same bank and the rest 80 per cent to meet your expenses. .
You may find it difficult in the beginning but in the long run you will get used to this spending method and develop the saving discipline. Savings will not happen automatically, you will have to save by cutting expenses on expensive gadgets, holidays etc.
Invest here
After completing a one-year RD, use that amount to pay premium for your term insurance policy, save in Public Provident Fund (PPF) and Equity-Linked Savings Schemes (ELSS) so that you get tax under section 80C Benefit can be received and a retirement corpus can also be accumulated.
Try to allocate more amount in ELSS schemes as compared to PPF in the initial years of your career so that you can get the benefit of compounding in the long run. ELSS schemes can give compounding returns between 12-15 per cent over a period of 20-30 years, while PPF cannot give more than 7-8 per cent.
Wealth managers say that even if you take into account the tax-free nature of returns from PPF, the net return (return after tax) from ELSS schemes will always be higher than that of PPF.
Create a fund of 9 crores like this
- If you start investing Rs 3,000 every month in an ELSS fund through SIP, you can accumulate a huge amount after retirement.
- If you are 25 years old and start SIP of Rs 3,172 in ELSS scheme and increase this SIP amount by 10% every year with increase in your salary, then till the age of 60 with 12% return You can deposit Rs 5 crore.
- If you increase the returns to 15 per cent, then you start with a SIP of Rs 3,306 every month and increase it by 10 per cent every year till the age of 60. By doing this you can deposit Rs 9 crore till retirement.
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