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Young Indians in 2021. Are they prepared?

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November 27, 2020

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Never does a person feel as invincible as in his/her youth. Life is just beginning and the world is at your feet.Retirement seems far away.Savings are not part of your vocabulary. Insurance feels like someone else or older should be buying it. But in a bid to live it up, are you forgetting to build a life? We analyse...

"In youth and beauty, wisdom is but rare!" said Homer, the presumed author of the Iliadand the Odyssey. Hilarious and something that the older generation would furiously nod their heads at. Although to be fair, it is tough to be young in the current day.

A current lot of over 1.5 billion youth across the world has a plethora of options and a surplus of challenges to navigate life through. Sometimes, taking charge of life seems nothing more than a Social Media post. But leaving something as important as financial planning for later is not an ideal way to start.

Is it time yet?

It is never too early to start thinking about investing. If the change triggered by the pandemic has taught us anything, it is that nothing can be taken for granted. And even the most powerful economies can be bought to their knees with a virus.

Anytime is as good a time to start investing. Today, investors have an array of options to choose from. Thousands of products and services and hundreds of firms and vendors. If the choice is turning out to be difficult, HDFC Life has financial tools that can help with the planning.

Warren Buffet, once famously said: "You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ".  Deciding should be based on simple criteria: Which products offer solid returns and help beat inflation. When you start investing young, the greatest financial asset is time - and compound interest. Don't wait too long to start, or skimp on investing enough when you have the resources. But be smart about it. The primary investment objective for long-term savings should be growth. Investors in their 20s will have at least 40 years over which to accumulate retirement savings.

Is it enough?

Retirement experts and financial planners often tout the 10% rule. But the truth is you will need a substantial nest egg after retirement, and saving just 10% of your income is probably not enough. When starting as early as in the 20s, you can get by setting aside at least 10 to 17 percent of your current income in the retirement fund. It is imperative to be able to increase your purchasing power in your retirement savings throughout your life. The amount does not include any short-term savings or emergency fund.

Several reports suggest that the common stock and the real estate are the only two asset classes that have grown faster than the rate of inflation over time.

What is the right thing to do?

The right investments for you are going to depend largely upon your investment objectives, risk tolerance, and time horizon. Automate your investments, then learn to live on less. Setting up an automated savings plan will help condition youself to save consistently, without having to decide between delayed gratification and instant gratification. It's also a lot easier to build real wealth when you've made saving and investing a priority instead of an afterthought.

Are you forgetting something?

Life insurance should be an important part of everyone's financial toolkit. It is meant to complete your financial plan. With a life insurance plan, like HDFC Life Click 2 Protect Life, you are offered security and cover against three uncertainties - death, disability, and disease1. Riders covering other risks such as accidents are available and can be attached to term plans to provide much wider protection for an insurer's family.

What about short-term needs?

An idle fund is money that is not invested in anything. It's not participating in the economy and therefore not earning investment income. Keeping your money idle is as good as losing it. Even low-risk, short-duration financial products can often offer a higher yield on cash as compared to traditional checking and savings accounts.

Money market funds, savings accounts et al, can all provide safety and liquidity. While you need to keep some cash handy for emergencies, instead of letting the money sit idle in a savings bank account, you can up your investment portfolio. The amount that you keep in these investments will depend on your financial situation, but most experts recommend investing more aggressively as you have time on your side to withstand the ups and downs of the stock market.

Are you waiting for a sign?

Leading English novelist, poet, journalist, George Eliot, was quoted as saying: "If the youth is the season of hope, it is often so only in the sense that our elders are hopeful about us; for no age is as apt as youth to think its emotions, partings, and resolves are the last of their kind. Each crisis seems final, simply because it is new".

Doing things right in your 20s offers the chance to set yourself up for life. While investing in your 20s may sound boring, starting young is easily the best way to get ahead. It all starts with recognising the money you earn is nothing more than a tool you can use to create the life and lifestyle you want via smart choices regarding spending, savings and investing.

What's the bottom line?

Investing works best when it's done early in life. If you can get into the habit of saving and investing automatically during your 20s, you'll never have to worry about money or retirement savings again. The most important decision that you can make as a young person is to get into the habit of saving and investing regularly.

ARN: ED/07/20/19905

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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