You have just crossed your 24th birthday, when you’ve gained the education and/or skills you need for the career you’ve chosen, and you’re earning money and learning how to handle it.

Ok, ok you are not in your twenties but are in your thirties and have started looking at financial planning. Fine, this article will be just as applicable to you – only that the time advantage of a 24 year old is not available to you.

AN EARLY START!

Remember the importance of an early start in a One-day International cricket match? An early start ensures that the middle order batsmen can play more freely. Similarly there’s no time like your twenties to start putting your money to work for you so that you can achieve your financial goals throughout your life.

You prevent needless debt, put away money for the things that are important to you, and take advantage of the power of compounding. In fact, compounding of earnings is so powerful that those who start saving for retirement in their twenties can amass large nest eggs with relatively little effort, as long as they invest regularly. Also remember retirement is not an age, it is a state of mind and a particular level of asset accumulation. If retiring means doing what you can rather than what you must, maybe you may want to retire at 37 instead of 55.

For an example of the power of compounding, take a 23-year-old who invests Rs.10,000 a month – he will accumulate about Rs. 15 crores for his retirement. Contrast this with a difficult Rs. 51,000 for a 35 year old to accumulate the same amount. Not bad for an early start right?

GOALS! The first step in planning is to identify your goals. In most financial planning exercises, this is the most difficult task to achieve for most of the people that I meet. Your short-term goals (five years or less) might include a wedding, buying furniture, a new car or a career changing higher education, doing your own business, or more lofty ones like dedicating your life to social services.

Next, think about medium-term goals, such as owning your own home and financing your kids’ college educations.

Finally, list your long-term goals, such as retirement and travel.

Remember all these goals have a financial implication. All of these goals will mean some sacrifice of present consumption for a benefit in the future. You need to feel very strongly about these goals.

Estimate how much money you’ll need to meet each of your goals, and determine how much you need to invest each month to reach that goal within your time-frame. When budgeting, set aside money to go towards your short-term, medium-term, and long-term goals. We all have limited means of income and too many goals to achieve, there will be conflicts.

Just do it! It may be wise to invest in Savings Bank accounts, Mutual funds, etc. for your short-term goals, and unit linked policies for your medium and long-term goals. Historically, the stock market has outperformed any other type of investment over time, but it’s not for the faint of heart.

Remember equity or debt is never the question – it is only how much of each. You can enter the equity market or the debt market through vehicles like Mutual funds or unit linked policies.

It is better to implement a plan while waiting for the “best plan for the year” .

ps: I do not believe that unit linked plans should be bought by people who do not know how to reverse engineer a product and break up the components of costs.