But 20-somethings should realize that planning one’s financial future gives them better control over what their life might look like, 10, 15, or even 20 years from now. Of course, goals and priorities keep changing along the way – as it may be, it’s better to start with a financial plan and tweak it based on your changing priorities.
If you are reading this, here are some things I would share based on my personal and professional experiences:
Start with the End Goal in Mind
Dr. Stephen R. Covey in his best-selling book
Seven Habits of Highly Influential PeopleThe second habit is defined as –
Start with the end goal in mind.
The idea is simple – have a clear end goal in mind (It’s okay if you’re not 100% sure about your goals. People rarely are. But it can help to visualize career, financial situation, personal goals, etc. does what we want in life and prioritize our actions accordingly). Apply this principle to financial planning and list your goals (in the moment) – whether it’s early retirement, traveling the world in your 20s, homeownership in your 30s, or your 40s have higher education. These goals help give you a sense of purpose in managing your money – even if your goals change in the future, the money will usually come in handy.
Plan: Great. Overplanning: A Strict No-No!
You want to make wealth. You’ve read everything on the subject, talked to consultants, and made careful plans, and you’re waiting for the right time to put this plan into action. Who’s waiting? Have things changed? Now you have to go back to researching, reading and talking to advisors again!
There is a thing called ‘overplanning’ your finances. This can prevent you from making any real progress in your financial journey.
My advice? Try not to overplan and fix everything at once. No one will and neither will you. Instead, keep saving and investing consistently, regardless of market timing. The road to wealth is full of learning from your mistakes – so go ahead, make mistakes and learn from them.
Leave Room for Error (and Curveballs)
Morgan Housel in his now-ubiquitous book,
psychology of money, They say, ”
The most important part of every plan is planning on what is not going according to plan.,
What would this mean in the context of financial planning? Well, two things – one, don’t put all your eggs in one basket. And two, ask someone you trust to keep some extra eggs for you.
The first is about diversification. Well, it’s okay to make mistakes, as long as they don’t wipe you out. Let’s say you do a lot of research and find (what you believe to be) the best financial instrument. what next? Putting all your money in that means? I would argue vigorously against it. The world is a very unpredictable place and the value of property depends on the thoughts and actions of many people so that one can estimate it correctly. So, despite your best research, your chances of being right are probably close to flipping a coin. And so, diversify – put your money in different investments, some a little risky, some wild bets (only if you have the appetite), and some boringly stable. So that your mistakes will not result in financial destruction but in learning.
The second is about the backup plan. You have sown the seeds of financial success, but what if an unseasonal rain destroys your crop? We all have an innate desire to protect our loved ones. And in our absence, we can really be sure they are covered financially. Our goal-oriented investments are like seeds sown – they will harvest wealth in time. But if you die untimely, these investments do not get the necessary time to build wealth. And this is where term insurance plays its role as a backup plan – helping your family manage their expenses, meet healthcare costs and achieve their life goals without struggling to meet your life goals. helps to. Think of it like the second engine of a plane.
ground level
A successful financial plan will require you to clearly identify your goals, then do some research, and finally take action. And while doing all this, don’t forget to diversify and buy a second engine for your aircraft as term insurance!