How Can a 20-Year-Old Intern Save Money and Maximize Returns?

I’m a 20yr old , currently doing internship and getting stipend of 30k, going to get package of 10LPA in 6 months. My expenses are minimum around 20k/month. I don’t have any loans. I want to save money and also get atleast minimal returns. I’ve very less idea about share market also. How can I save money and create a plan for me to save max and also get maximum returns.

Ans: Hello;

Begin with creating an emergency fund worth 6 month of expenses.

Get a pure term insurance cover of adequate value with accident benefit and critical illness riders.

Open an NPS account for retirement planning.

Invest in mutual funds for all other financial goals based on your risk appetite, financial profile and time horizon.

Avoid direct exposure to stocks since it can be quite volatile in the short to medium term.

You may seek help from an MFD, if required.

Best wishes;
X: @mars_invest

Ans: At 24, you're already investing in SIPs, a recurring deposit, and stocks. This is a good start. You also support your parents, which is admirable. However, you currently lack an emergency fund and have a Rs 30,000 loan. Let’s explore how to manage your finances efficiently while building a secure future.

Creating an Emergency Fund
Your top priority should be building an emergency fund. This fund will act as a cushion for unexpected expenses, like medical emergencies or job loss. Without it, you may have to rely on loans or liquidate investments.

Ideally, aim to save 3 to 6 months of your expenses in this fund. Start small by setting aside Rs 1,000 to Rs 2,000 per month.

Keep this fund in a savings account or a liquid mutual fund for easy access. This will ensure your money grows while remaining accessible in case of emergency.

Clearing Your Loan
You have a loan of Rs 30,000. It’s important to clear this as soon as possible to free yourself from debt. Prioritize paying off this loan before increasing your investments.

Dedicate a portion of your income toward repaying this debt, even if it means temporarily lowering your investment amounts.

Paying off debt quickly saves you money on interest, which you can then redirect towards investments.

Balancing Investments with Savings
Once your emergency fund and loan are under control, focus on increasing your investments. Your current SIP of Rs 500 is a good start but increasing it over time will help you build wealth faster.

You are also investing in stocks, which can offer high returns but come with risk. It's important to balance this with stable investments like mutual funds to diversify your portfolio.

You can consider redirecting some money from the recurring deposit towards mutual funds for better long-term growth. Actively managed mutual funds, in particular, can help you benefit from professional expertise.

Avoid Direct Funds
If you are considering direct mutual funds, remember that they may not be suitable for everyone. Without expert advice, you could choose funds that don’t match your financial goals or risk profile.

Investing through a Certified Financial Planner (CFP) or Mutual Fund Distributor (MFD) ensures you get tailored advice. Regular mutual funds give you access to this expertise, which is worth the slightly higher expense ratio.

Allocating Your Monthly Income
With a salary of Rs 25,000 and after supporting your parents, you still have room to save and invest. Once your loan is cleared and your emergency fund is set, aim to allocate around 30% of your salary to investments.

Start by increasing your SIPs over time, gradually moving from Rs 500 to Rs 2,000 or more per month. SIPs offer the benefit of rupee cost averaging, which reduces the risk of market volatility over the long term.

Systematic Investment Plan (SIP) Benefits
SIPs are a disciplined way to invest. By investing a fixed amount every month, you buy more units when prices are low and fewer when prices are high. Over time, this can yield significant returns.

Actively managed mutual funds offer better growth potential than passive options like index funds, as fund managers make informed decisions to optimize returns.

Continue with your SIP and gradually increase your contribution as your income grows.

Controlling Expenses and Budgeting
Since you’re sending money to your parents and also paying off a loan, it’s important to track your expenses. Keep your spending minimal, focus on needs over wants, and try to save more each month.

Creating a simple budget can help you manage your expenses and ensure you are saving and investing consistently.

Avoid Overexposure to Stocks
Stocks can be volatile, and putting too much money into individual stocks can expose you to risk. It’s better to have a diversified portfolio with exposure to different asset classes.

Mutual funds provide a good balance between risk and reward. They also spread your money across multiple companies, reducing the risk compared to investing in individual stocks.

You can continue investing in stocks, but limit it to a small portion of your portfolio while focusing more on mutual funds.

Tax Benefits of Investments
SIPs in mutual funds, especially in tax-saving schemes like Equity-Linked Savings Schemes (ELSS), can provide tax benefits. ELSS allows you to save on taxes while growing your wealth through equity exposure.

These funds come with a lock-in period of 3 years but offer better returns compared to traditional tax-saving options.

Use the tax benefits to your advantage while ensuring your investments are aligned with your long-term goals.

Health Insurance as a Safety Net
While you are young and healthy, it’s still important to consider getting health insurance. Medical expenses can drain your savings quickly, and having insurance ensures you don’t have to use your emergency fund or investments for healthcare costs.

Even a basic health insurance plan will provide peace of mind and protect your finances from unexpected medical bills.

Reviewing Your Financial Plan Regularly
It’s essential to review your financial plan at least once a year. As your income increases, your financial goals may change, and you will need to adjust your investments accordingly.

A Certified Financial Planner can help you make the right choices based on your changing needs and risk tolerance.

Finally
You’re in a good position to build a strong financial future. Focus on creating an emergency fund, paying off your loan, and gradually increasing your investments.

Diversify your investments to balance risk and reward, and take advantage of tax-saving opportunities.

Health insurance and a disciplined approach to saving and investing will ensure you stay on track to meet your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment