Start investing before your twenties end

It has been a saying that your twenties is the most important time of your life during which you graduate from college, you get a job, you start earning and then you start saving for your future to make the most of it. These savings could be in any form.

Twenties is the age of having plenty of physical and mental stamina to work hard along the drive and passion. Keeping your 9–5 job aside, you can start gaining from other income sources. These other sources of income could be anything. Working as a consultant for someone, writing a content for someone, building a website for someone, and many more. There are various ways where you get an active income. As the name suggests, active income is something where you do some work for someone and get paid for it. On the other hand, passive income is something where you get an amount while you’re not doing anything. Now the words ‘not doing anything’ doesn’t literally mean you’ll keep on generating the income without doing anything. In a broad way, passive income requires investment of amount and time, it also requires analysis, understanding of compounding, risk analysis and money management.

Investing in your twenties is an excellent way to build wealth and plan for your financial goals, while there are some factors which you need to take into consideration. I’ll share some of the factors which I’ve implemented on priority while I started investing one year ago.

1. Risk factor: You may have heard that the younger you are, the greater amount of investing risk you can handle. While this is true in general, it is not necessarily true for all people. Risk tolerance refers to your capacity and readiness to lose some or all of your investment in exchange for the chance of higher returns. Accepting some financial risk often delivers greater reward (considering that you’ve done your homework on it).
2. Tax benefits: Investment is one of the way to maximize your tax savings before the end of the financial year. The tax saving could be different on equity investment or mutual funds investment or many other ways of investment. It might not help for the short term capital gains but if you’re having target for long term capital gains then you can definitely save some amount by claiming those.
3. ROI (Return on Investment) : This is the benefit that the investor gains after deducting the net cost of the investment. It plays a vital role to invest in good stocks, funds where you get satisfying percentage of return. The net after tax return should be higher than inflation rate. This is an increment in the value of asset.
4. Budget planning: An investor must calculate his/her monthly budget from the salary and should invest accordingly. He/she must budget for unexpected costs. An individual should always categorise the monthly budget into emergencies, daily needs, savings and investment.
5. Volatility in market: Market is not always stable in terms of gains. If a market goes through frequent swings and fluctuations it is called as volatile market. You can see volatility into market every now and then. For a beginner to invest into stocks, it is safer to invest in market when it is less volatile. The level of volatility will have an impact on amount of returns that the investment yields. Volatility is always in link with risk.