How to Invest Money in your 20s- A complete guide for beginners

The golden advice that anyone can give you when you decide to invest money is that the length of time for which the money is invested is more important than the amount of money invested. That is why your 20s are considered to be the optimal age to invest money so, that you can reap its benefits later on. Your 20s are the time in your life when you start earning some amount of money and taking responsibility for your life decisions. You slowly begin to become familiar with financial terms like budgeting, mutual funds, SIP, etc., and understand the importance of saving and investing your money.

But the idea to invest money might seem a bit chaotic as all different people will be giving a multitude of advice, all with the best of intentions. But if you are not financially literate, then no one can help you. Thus it is important to become aware of the financial terms before you go gaga to invest money.

If you are also wondering how to invest money from the very start, then this blog is just for you. Continue reading to get some useful tips from experts on how to invest money today for a secure financial future tomorrow.

1. Start investing today.

Many people in their 20s make the mistake of delaying their investing journey as they feel that they have a lot of time to reach their financial goals in the future.

But many financial experts like Warren Buffet have suggested that the time duration of the investment matters more than the amount invested.

These are their learnings from experience. Did you know that Warren Buffet bought his first stock at the age of 11 and the billionaire Ray Dalio started his investment journey at the age of 12?

This shows that they practice what they preach.

If you are in your 20s, then it’s better to invest money in Employee Provident Fund or start SIP mutual funds. You can start SIP with small amounts of 500 rupees and watch your investment grow over time. And as there is more time available in your 20s, you can more risks.

I have given a list of mutual funds that you can invest in 2022:

  • Axis Bluechip Fund
  • Mirae Asset Large Cap Fund
  • Parag Parikh Long Term Equity Fund
  • UTI Flexi Cap Fund
  • Axis Midcap Fund
  • Kotak Emerging Equity Fund
  • Axis Small Cap Fund
  • SBI Small Cap Fund
  • SBI Equity Hybrid Fund
  • Mirae Asset Hybrid Equity Fund

2.  Follow the 50:30:20 rule

Young people are often stuck in a predicament on how to invest money when they still want to enjoy their life and gain new experiences.

Most of the time they have this attitude that at this point of time in their life, the important thing is to enjoy life and not start saving for older age.

But what if I tell you that you can do both at the same time? Save money and enjoy life at the same time by following the 50:30:20 rule.

This rule has meaning. Whatever you are earning in hand, you have to spend 50 percent on daily necessities, 30 percent on desires, and 20 percent should be kept separate for investment in different ventures.

How this will help you? It will create a habit and create discipline so that you don’t have to compromise on either the quality of your life or your long-term financial goals.

3. Become aware of the basics of finance and investment

We are all taught a lot of things in our school except how to invest money and where. Youngsters are mostly unaware of the financial terms and alien to the concept of savings and investment.

In your 20s, you should learn to distinguish financial terms like budgeting, taxation, investment, mutual funds, etc. so that you are able to better plan and organize your plans.

Once you start understanding the basics of finance, you seem to increasingly take interest in the matters related to your country’s economy and how they will impact your investments.

4. Follow the principle of Save First, Spend Later.

Young people in their 20s often complain that their income is insufficient to enable them to invest money and save for the future. But for this problem, I have a simple solution.

What you need to do is to start the process of savings first and spend later with the amount that you have left. This will forge a healthy habit in the long run to meet your financial goals.

No matter how small the amount is, just continue saving and you will reap the benefits of this later on. As you must have heard, “A small drop creates an ocean.”

 5.Set realistic financial goals and plan your investment journey accordingly.

Setting goals is important but keep in mind that these goals should be realistic. Don’t set a goal of becoming a billionaire by the age of 25 because it might not work unless you are Kylie Jenner, of course.

So, keep in mind your salary growth and expenses and set some realistic goals which seem achievable. For example:

  •  Starting up an Emergency fund that can cover some unforeseen circumstances.
  •  Setting up your retirement savings funds for your life after retirement.
  •  Saving for your education or marriage.

Now, you can create strategic plans that will help you to invest money for financial stability.

6.Automate Your Investments

The process is made simpler by automation, which is one of the main advantages. Starting a Systematic Investment Plan (SIP) in a Mutual Fund is the best option to automate investments.

SIP enables investors to buy units of a mutual fund on a certain day each month for a predetermined amount of money.

For as little as Rs. 500, one can begin a monthly SIP and begin building wealth. Young investors can build up a sizable corpus over time with the assistance of even a little monthly SIP.

 7. Do not underestimate the benefits of an Employee Provident Fund

It is a great deal of importance when an employee gets the benefits of an Employee Provident Fund (EPF) at his workplace. An EPF is a sort of retirement fund which is set up at the time of the joining of the employee. Each month, he donates some part of his salary to the EPF and the employers contribute the same amount too. The amount deposited generates interest over time and is very well utilized in times of the employee’s needs. It is very much advised that both the employee and the employer are making the maximum contribution as allowed under the EPF scheme.

8. Increase your savings rate incrementally

Many people in their 20s always have the issue that they are earning very less and cannot save enough to invest money in any sort of equities. For all such people, I would like to give very simple advice that you should start investing no matter how small the initial amount is. You can start SIP with just 500 rupees and buy penny stocks for example. But any investment is better than none at all. But eventually, as you progress in your career, you need to incrementally start increasing your savings. This will ensure growth in the long term.

Some Parting Thoughts

Setting up personal finance best practices is best done in your 20s. People can benefit from the positive effects on their finances not just in their 20s but also as they advance in their financial journeys by putting the straightforward advice provided in this article into practice.

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