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| Capitalstars Investment Advisor |
Having time on your side is a big advantage while investing, as compounding works like magic over long periods. A small portion of your savings should be allocated to long-term goals which you should simply let accumulate.
Jaineel has recently started working. He currently lives with his parents and it enables him to save substantially. He is keen to save and invest for the future. However, his parents want him to buy a house before he gets married. Jaineel likes to travel, an interest he had been waiting to pursue once he starts earning. How should he prioritize his savings and spending?
Jaineel should understand that he has just begun his financial life and should take a strategic long-term orientation to his money. He has at least 60 years to look forward to, of which he may earn for the first 35 years, and draw on his savings for the rest of his life. Having time on one’s side is a big advantage while investing, as compounding works like magic over long periods. A small portion of his savings should be allocated to long-term goals, and he should let it simply accumulate without getting worried.
Jaineel should be aware that as a youngster, his ability to manage his income and expense might be tough. Even a holiday might dent his savings significantly since he would have a smaller salary at the beginning of his career and a lower amount of accumulated savings.
He may need the flexibility of being able to dip into his savings, or take a loan and replenishing them whenever needed. This means a good amount of money should be kept in flexible assets such as bank deposits and gold, which can be redeemed or used to borrow for short periods. If he invests in a house too early, the EMI would be too high, reducing his flexibilities significantly.
Jaineel will have to decide on his spend vs save ratio. If he is able to save significantly due to the lower level of expenses, he should devote a portion to building assets in flexible investments, and another to spend as desired. He may become resentful later, if he has to use all his income to pay EMIs and save, without pursuing his interest. On the other hand, he may be ill-prepared for larger expenses if he spent all that he earned, and had no cushion for larger expenses. A balanced, disciplined and patient approach will help Jaineel immensely.