A letter to my 20-something self
Dear 26-year-old Soni,
Hi! Before you freak out, let me assure you that life 20 years hence is not so bad. We now have cabs on call, video-calling on phones and you don’t have to go anywhere to shop – you can do it on your computer or smartphone! And yes, we are married and have a lovely baby girl. But I am not writing this to paint a rosy picture of the future. I am writing to ensure that our financial future is such that we can enjoy all that life has to offer.
Why I chose you as opposed to perhaps my 20-year-old self or my 35-year old self is that I was happiest when I was you. I was doing well at work with prospects of professional growth bright. I was enjoying the financial freedom that comes with a steadily growing income and no liabilities. I still had faith in the innate goodness of humanity. There was only one way to go – up. So to my optimistic, positive, trusting self (who had a steadily fattening bank balance), here are some things that hindsight tells me I should or should not have done.
Say no to Shuklaji, Sharmaji or Bhatia aunty
You have probably been subjected to a highly paternal, patronising and persistent spiel by the gentleman with a briefcase who patiently waits for you to finish work till you can no longer avoid him. Then he starts bombarding you with numbers. He tells you how little you have to contribute. He tells you how much money you will get back. He says it will save you tax – and as a new tax-payer, you are already chafing at seeing a chunk of your salary disappear even before you have had a chance to experience its buying power.
The way he explains it, you are not only saving money but also securing your future. He plays on your fear of mortality. He pounces on your paranoia of ever being without work. He capitalises on your lack of mathematical prowess. He sells you life insurance policies. In our office he was Shuklaji, but he comes in many avatars. Every office and sometimes family or family friend has one, if not more.
My advice: Say no to Shuklaji, Sharmaji, Bhatia aunty or whatever name he/she goes by. Life insurance schemes benefit only the company and the agents. The rate of interest you get is likely to be about 5%, so you are not even beating inflation. Get a good health insurance policy but steer clear of life insurance. You can invest whatever your life insurance premium amount is in other vehicles and get better returns than the final payout of the insurance policy. Take a term insurance plan since you might be contributing to the finances of the house and if something were to happen, you want to ensure that they are financially safe.
Plan ahead for yourself, as you do for your work
I love how you are getting into the habit of planning your week. You have a list of story ideas for the week. You have a second list breaking up the steps to get the story – the people to call; the quotes to get; the documents to back up your story and a time-frame to submit it. The only thing you don’t have is a plan for your life and your money.
You have no financial burden. All you are spending your salary on are commuting to work, eating out, indulging yourself once in a while and splurging on gifts. A large chunk of your salary is just sitting in the bank. You are feeling happy with just the thought of your steadily fattening bank balance.
But know this – letting money just sitting idle in your bank account is nothing short of burning it. As inflation grows, this money is losing its buying power and its value. Use it to build a better future.
My advice: Figure out what you want to do with your money. After all, its value lies in its buying power. Otherwise, it’s just paper. Remember how you always wanted to study abroad? Plan for it. Invest your money for it. And make it come true. You can make your money work for you if you set targets of what you want 5 years, 10 years or 20 years down the line. Set your goals and work towards achieving them.
Dip into your SIPs
One thing I must congratulate you on is that you have started investing in SIPs. SIPs are nothing more than a way to bring in some financial discipline in your life. With SIPs, you are putting your money in mutual funds and getting better returns on investments than fixed deposits. But don’t just give instructions to your bank to auto-debit the monthly investments.
Read the documents that come with the SIPs. Keep track of how they are growing. Get an accordion file and take charge of all your investment documents. Keep track of your money.
My advice: If you want your money to grow in real terms and not just notionally, book your profits. When you see that your investment has grown to a certain size, withdraw the profits while keeping the corpus intact. Don’t blow up your profits, reinvest in other schemes. Diversify. Maybe grow your risk appetite and try some high-risk high-return funds instead of sticking to conservative funds – but don’t put all your eggs in one basket. At 26, you can afford to take risks – but educated risks. This is the time to grow your money fast because you have age on your side.
Look beyond the Ps – PPF, Post Office and Policies
Mummy is right about PPF. The Public Provident Fund is a good way of investing in getting good returns and income tax savings. The post office recurring deposit account and the policies you have got from Shuklaji are also good for the same reason. But look beyond. Change how you think. You don’t want to “save” money; you want to “invest it”.
My advice: Diversify how you invest your money. Stop thinking you have all the time in the world. Stop saving money and start investing it.
Find a money mentor
You know how important it is to have a professional mentor. Having a senior at work take you under their wings exposes you to so much practical learning. Conversations with senior journalists where they share their reporting experiences are more than an adda session – it is an opportunity to pick up tips on things to do and things not to do. You have some good mentors are work. Now, go out and find a personal finance mentor. Don’t just buy another life insurance policy just because everyone else in the office is doing it.
You will need a financial mentor to also guide you on things like negotiating a raise. Your journalism mentor will help you in navigating your way through the minefield of balancing personal equations and professional rivalries but your financial mentor will help you in ensuring that your hard-earned money is put to good use.
My advice: Start conversations about money. Talk to your friends about salaries. Ignore the heart-burn and learn to negotiate from them. Find someone you can trust to guide you with investing your money. Educate yourself on the subject and soon, you will be able to mentor others.
Waiting for you on the other side of the next two decades.
With all my love
Your 20-year-older self
Are you a 20-year-old who is glad you read this advice or a 30 something who wish you had known this before. For discussing all things money and getting financial advice to figure your solutions, join the sisterhood community here, Life on My Terms.