6 Simple Financial Habits Essential For Every Young Investor

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As a young investor, good financial habits are the foundation for financial stability and security. Making simple changes in the way investors manage their personal finances is all that financial habits imply.

As a young investor, you have your entire life ahead of you. There’s the feeling of excitement of being self-sufficient, making your own financial decisions, and so on.

Many young investors get caught up in the hype and neglect their finances—unnecessary spending, bad investment choices, credit card debt, and so on.

There is nothing magical you must do; all you need is a positive attitude and an essential shift in your mindset to turn your opinions into good financial habits.

So, don’t miss out on these 6 financial habits shared by Experlu that are necessary for your financial growth:

1. Create and Stick to a Budget

This is the first and most important financial habit you must develop. Budgeting is the first step toward financial independence. Simply put, a budget is an estimate of your earnings and expenses over a specific time. You can easily reach your financial objectives if you have a set budget.

Make a budget for yourself that is based on your:

  • Monthly cash inflow: How much cash do you make monthly? Do you have any other sources of income or passive income?
  • Monthly cash outflow: Rent, groceries, mobile and electricity bills, loan repayment, clothing, and so on are all monthly expenses.
  • Monthly savings: How much money can you realistically save from your monthly earnings?

You can, of course, make minor changes to your budget as needed. However, not having a budget is not an excuse.

2. Begin Early

Usually, the most significant financial regret people have is that they should have started sooner. Starting early is simple because you do not have the financial obligations that come later in life.

You have a better chance of creating long-term wealth if you start early.

All of this is possible, but only if you can resist the temporary “high” splurging. It’s not easy, which is why we’ve prepared our next habit for you.

3. Don’t limit yourself to “old” and “safe” investments

As a first-time investor, you seek investment advice from your father or other family elders. Many times, the advice does not apply to the times we live in.

This is because the financial landscape and complexities have changed so dramatically over the centuries. To facilitate (and overcome) these challenges, you must do the following:

  • Start taking on equity exposure to build long-term wealth.
  • Don’t put all eggs in one basket. Diversify and expand your investment portfolio to reduce your risk.
  • Choose low-cost, transparent products such as mutual funds and NPS.
  • Understand that so-called safe investments, such as insurance plans, NSC, and Post Office products, are indeed “risky” because they do not safeguard you from rising prices and inflation.
  • Instead, educate yourself on equity and develop a proper asset allocation strategy.
  • Invest in self-learning and growth.

4. Take money out of your bank account at the beginning of each month

The most common concern for young investors is that they have no idea where all of their money has gone by the end of the month. To solve this issue, use the following simple formula: 

Income- Saving = Expense

Setting up a Systematic Investment Plan (SIP) in 2-3 decent mutual fund schemes is the best way to accomplish this. Allow the investment to take place during the first week of the month.

This ensures that money is invested from your account without your conscious action—the lower the balance in the account, the less temptation to spend money on unnecessary items.

5. Establishing an emergency fund

This isn’t just a financial habit; it’s also a necessity of the hour. Financial emergencies can knock on anyone’s door, but you have nothing to worry about as long as you have enough backup for yourself and your family.

The term “emergency fund” refers to money that is readily available whenever you need it. For example, if you have a medical emergency and need money right away.

Depending on your goals, you can look into other investment options such as fixed deposits and liquid debt mutual funds in addition to savings accounts.

Once you have a 3-4 months emergency fund in position, you can start saving and investing for your long-term goals.

6. Debt elimination and debt avoidance

Debt elimination and debt avoidance are two distinct issues that must be addressed. So, if you avoid debts in the first place, you will be able to enhance your financial situation.

Debt can be good depending upon how it is used. A loan taken at a lower interest rate to grow your business or use it as an arbitrage can be good. However, the borrowings for holidays is questionable.

Also, if you have accumulated few debts, particularly credit card debts, you can transfer these on other credit cards offering zero per cent interest.

Winding-up

The first few years of your career are critical in your financial future as a young investor. Try to make good use of these years by accumulating a good savings corpus and saving yourself from significant mistakes. This will allow you to lay a solid foundation for a booming financial future. 

You can also find a chartered accountants in Canary Wharf to make the correct financial decisions at the right time to minimise certain errors.

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