Starting a SIP at the age of 20 might sound extremely daunting, especially when you wish to continue viewing your favourite Netflix series and weekend escapades. However, smart money management can guarantee that you’re building your future without sacrificing your present.
Here’s a detailed guide to get you started:
Why Start SIP at 20?
This is the power of compounding: It helps you grow your investment exponentially. Even small contributions made at 20 can lead to very significant returns when you’re around 40 or 50.
- Financial discipline: This helps you inculcate some financial discipline, which is very important when you are navigating adulthood.
- Low Initial Investment: Most SIPs allow you to start as low as ₵500 a month to make it affordable even for students or early earners.
Steps to Start an SIP Without Breaking Your Wallet
First, analyse your income and expenses. This will help identify areas where money can be curtailed with minimal impact on your lifestyle. Let’s say cutting one coffee bought at a cafeteria per week costs you ₵200, money that can then be put toward your SIP.
- Set Financial Goals: Determine what you are investing for; be it your car, further studies, or long-term wealth creation. This will decide which mutual funds should be chosen by you.
- Choose the Right SIP: Select funds that align with your risk appetite and goals. Equity funds are the best for long-term growth and can give good returns in the long run. Debt funds offer safety and steady returns without much high risk.
- Automate Your Investments: Automating your SIP ensures consistency and removes the hassle of remembering payment dates.
- Budget for Fun: Allocate a fixed amount for entertainment, including Netflix, dining out, or movies. This prevents overspending while allowing you to enjoy your life.
Example Budget for a 20-Year-Old:
Income: 15,000 (part-time job or allowance)
SIP: 500
Netflix: 499
Savings: 2,000
Miscellaneous Expenses: 12,000
This allocation ensures you’re saving and investing while indulging in small pleasures.
Benefits of This Approach
- Financial Security: SIP helps you prepare for future expenses with a safety net.
- Balanced Lifestyle: Plan your budget wisely to save for the future and enjoy the present moments too.
- Stress-Free Investing: Automated SIP takes away all the stress of market timing. Plus, if you see that your money has grown consistently, then that’s amazing indeed.
Common Mistakes to Avoid
- Starting Late: The sooner you begin, the better your returns.
- Stopping SIPs During Market Lows: Market dips are growth opportunities; stopping your SIP can hinder your returns.
- Not Reviewing Your Portfolio: Periodically check if your investments align with your goals and adjust as needed.
Closure!
A SIP started at 20 is the wisest financial decision one can ever make. If done with the right budgeting, it can ensure that the future self will be financially safe and sound, and the present self will continue to enjoy life. At Future Ready, we give you insight and resources for making informed financial decisions. Discover our platform for managing money wisely and brightening your future.
FAQs
- How much can I invest in an SIP at 20?
You can begin with as little as ₵500 a month and increase the amount as your income increases.
- Can I temporarily stop my SIP if I face a financial setback?
Yes, most SIPs have provisions that allow you to suspend or even change contributions without any penalty.
- Is it risky to invest in an SIP?
The risk depends on the type of fund you choose. Equity funds are more at risk but have higher returns; debt funds are safer.
- How long should I keep my SIP running?
Ideally, keep your SIP going for at least 5-10 years to reap the most from compounding.
