It can be difficult to start investing at a young age. Your pay packet has to accommodate rent, mortgages, bills, and other numerous expenses, leaving you with barely enough. To add to the difficulty of eking out enough savings, the bewildering array of choices can make it even more intimidating. But when it comes to investments, the earlier you start, the more benefits you can accrue.
While the amount you can put aside each month may seem too small, the trick lies in investing it wisely. Starting early allows you to expand your money into a corpus that you can use to meet your financial goals, be it buying a car or an early retirement. It teaches you financial discipline and helps you to gain financial independence.
If you still find it a difficult journey to start on, here are six principles of financial planning to help you get an early start.
Decide on How You Want Your Style of Investing
As an investor, you can take either an active or passive approach. Active investing is a hands-on approach where you buy or sell stocks as per market fluctuations. It allows you to minimise risk, go for profitable trades, and create wealth in a short timespan. On the other hand, it requires constant monitoring of the markets, a good understanding of its functioning, and the knack to make prudent and quick decisions. It can also be more expensive since you’ll be paying a trading fee with each transaction.
In contrast, passive investing takes a more hands-off approach and focuses on long-term gains. The goal here isn’t to beat the market fluctuations, but to focus on allowing your portfolio to earn money through careful risk diversification across different assets. While a passive approach may be slower at generating wealth and may not allow for any dramatic returns, it is typically safer. It lets your money slowly grow towards a desired goal.
Ultimately, your preference will depend on how much time you can devote to your portfolio and your risk tolerance. If you have the time to devote to active trading and aren’t apprehensive of taking a few risks, an active investing approach may suit you perfectly. On the other hand, if you have other commitments, like a job, a passive approach may be more suitable for you.
Set Up Your Budget
The first thing you have to decide is the amount you can set aside each month towards your investment plan. There is no minimum amount here and you can start with as little as INR 100. The aim here is to pre-determine the minimum amount that you can earmark from your savings and then stick to the commitment. Setting a budget requires you to exercise financial discipline and minimize your spending.
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