Financial tips for a 25 year old

Originally published at BeingfinWise

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If you are 25 year old, there is a good likelihood that you would have started working or are likely to start soon. And hopefully start(ed) managing your own finances.
So, what do you do next?
The good news is that having a profession can soon lead to cash flows which perhaps wouldn't have seen in your student days. And that can be empowering in many ways.
The bad news is that, if you are reckless with spending money, it can soon lead to a downward financial spiral.
Managing your finances well can be a good first step towards a healthy financial life. And it starts with small steps.


Here are some (unsolicited!) tips to manage your finances as a 25 year old.

1. Spend less than you earn.
2. Invest. It's OK to start small. But do start investing. Increase as your income grows.
3. Start reading about what are the possibilities in investing. Don't take everything at face value. Look beyond glossy sales brochures when evaluating an investment.
4. The younger you are, more can be your risk taking ability. Hence, invest in equities/ mutual funds. They have given good returns in past (better than most asset classes). And as economy grows and hopefully does well over long period of time, they can be expected to give good returns.
5. Money is important. But learning is more important at this point of life.
6. Avoid lifestyle trap. Running after the latest iPhone or bike or car or gadgets may not be worth it, especially if you can't afford it.
7. Don't buy a car/ bike on EMI (unless not owning it seriously hinders your day to day life). If you can't afford it, consider buying a used vehicle.
8. What everyone around you is doing may not always be right. Think for yourself before copying someone's lifestyle.
9. Don't rush to "invest" in a house immediately. It is a huge financial (and often emotional) commitment & may tie you down.
10. While you may want to upgrade your lifestyle with every raise/ switch, don't overdo it.
11. Avoid things which may be harmful for health - Smoking, alcohol, drugs may not just potentially ruin your health, but also come at a huge financial (and sometimes legal!) cost too.
12. Excessive partying and eating out too frequently may not be the best lifestyle choices. And expensive too.
13. Get insured - Health insurance and term plan to begin with.
14. Insurance is not investment. It is a risk management tool. Don't mix investment and insurance.
15. Understand inflation. And lifestyle inflation. And try to mitigate lifestyle inflation (avoiding may not always be possible!). Inflation needs to factor in your financial plans, especially over a long time horizon.
16. While keeping yourself updated with latest trends and having good, marketable skills is good, don't assume job security forever, even if you are a rockstar. Factor that in your financial plan.
17. Have an emergency corpus ready & readily accessible.
18. Stay away from unnecessary loans and EMIs.
19. Pay off your entire credit card bill on time. Don't fall into part payment trap.
20. Understand compounding. Compounding can work wonders for your financial life.
21. Understand compounding. If it goes wrong, compounding can work against you.
22. While financial independence (and early retirement maybe) is a good goal to aspire for, you may need to avoid romanticizing early retirement, unless you have a "what to do next?" plan in place. It is usually a long life ahead.
23. While it is too early, retirement is something that you should think of.
24. You and your life partner (now/ future) must be at least somewhat in alignment about attitude towards money.
25. Having financial goals in mind can help. In fact, that may be the best starting point of your investing journey.

Have something else in mind?
Do share.
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There are lot of things in the above which I didn't follow when I was 25, and nor was aware of. And I wish, someone had told me about them! I am hoping that few people read this list and benefit :)