Hey Young Man! Invest with pocket money, build wealth

Financial Planning | admin | November 15, 2010 at 7:09 pm

Save pocket money A friend excitedly called up a few days ago asking if mutual funds really deliver returns as per their NAVs. Her confusion was mainly because of her investment which had grown from Rs 5,000 to Rs 23,000 in a matter of 6-7 years.

The investment in itself was savings from her pocket money of many years which of course was conveniently forgotten. If her story is to be believed, she had put the money because some mutual fund advisor had asked her to invest in a new fund offer (NFO). She couldn't believe her luck when told that the value was real and she could withdraw it any time.

Now she is actually regretting the fact that she could muster only Rs 5,000. If she had put in Rs 20,000, her wealth would have been more by a lakh of rupees.

Many investors rue the fact that they were not smart with their money in the early of days of their life.

Not surprising since not many think of saving or investing when they are too happy to spend. Unlike the older generation, the present-day young investor can actually think of investing as his resource base is a lot more decent.

For instance, the average pocket money in the metros runs into a couple of thousands and if media reports are to be believed, it is as high as Rs 5,000-6 ,000 per month for many students. Even if someone decides to save Rs 1,000 out of this, it would result in an annual savings of Rs 12,000.

Over a period of five years, that is a healthy Rs 60,000. If you can invest it for a period of five years or forget about it for 10 years, you would be richer by a few lakhs of rupees. Surely, it can fund your first car or fancy bike.

So, for the young investor, is it worth looking at savings or investments when parents are giving the money to take care of expenses. You should look at not spending the entire allowance for your own good.

Finance discipline: It will teach you finance management and will come in handy when you grow up and have a bigger corpus to manage.

Wealth creation: This starts with the generation of surplus from any income and if you can master the art with your pocket money allowance, it can only get better.

The moment you get into the habit of restricting your expenses to a limit, you will automatically be better-equipped to create wealth.

If your parents are struggling to realise their financial dreams it is because no one would have told them to think about investments at a younger age.

You can be different from your parents and show them the way to manage a budget.

Satisfaction of independence: As an individual without major financial liabilities or save pocket money responsibilities, you are better-equipped to save and invest even when compared with your parents.

So, if you have been lucky to get a fixed allowance to manage your living, don't get into the habit of overshooting your allowance. Nothing can give you better satisfaction than managing money without borrowing from friends and parents.

Starting early helps: And finally, you can afford to invest as little as Rs 100 or Rs 500 per month as a young professional and still go on to make a few thousands of rupees when you grow older.

An investment of Rs 500 per month for a 16-year-old is good enough but not for a 30-year-old. A difference of 15 years can make you wealthy if a systematic approach is adopted.

Look at products like recurring deposits or systematic investment plans in equity funds to start with and it can be continued or increased over a period of time.