5 Things I Want To Tell My 22-Year Old Self About Saving And Investing Money

I am in my early 40s and my investment portfolio is practically non-existent. I am one of those who listens to peers discuss their third house, get excited about bull markets or count the zeros in their bitcoin earnings. All while I gently nod, counting my missed opportunities. I receive excellent financial advice, from the best investors, only a few years too late.

So, now that my dream of retiring by 45 is dead, I would like to take this opportunity to tell the millennials and Gen-Zers the top 5 things I should have done in my 20s for a more secure financial future. So kids, sit back and take notes on how to start your journey towards financial freedom in your 40s.

Get Rich 101 – Start Early

I started earning in my early 20s but I started saving seriously only in my early 30s. I wish I could have listened to my parents, who kept reminding me that all those cool gadgets will become useless one day, but money in my bank won’t.

What should have been done instead: Your 20s is the time when you start your first job and start earning money. The excitement of spending on clothes, parties, vacations or that new phone is priceless and an experience everyone should have. But after the initial euphoria, the sooner you start saving and investing money, the longer it will have to grow and let compounding work its magic over time. So, start to save and invest from a young age and see your money multiply over time.  

Fun Fact: Warren Buffett started earning and investing at the age of 10 and attributes a huge part of his success to compounding! 

Get Rich 102 – Save First, Spend Later

I never had a plan for saving. Some months, I would save nothing, and some I could save in bulk in an FD. Months before financial year-end were miserable when I would have to suddenly spend most of my salary on tax saving schemes, disturbing my personal budget for months.

What should have been done instead: Usually, we spend our salary on expenses before saving from whatever is left. Experts recommend just the opposite. You should always “pay yourself first” – that is, take out savings from your salary before you start spending it. It is recommended that you should save at least 20% of your take home salary, but I say the more the merrier, especially when you are young and have fewer liabilities.

As Warren Buffett advises, “Do not save what is left after spending, but spend what is left after saving.”

Get Rich 103 – Take care of liabilities first, even the ones which don’t exist right now

Every time I could see my investment kitty building up a bit, something would eat it up. In my late 20s, I left my well-paying job to begin my own start-up. After a year, I ended that journey with no regrets, but also no earnings or savings. When things settled a bit, I bought a house so that “I would spend less and save more”. But soon after, there was a medical emergency in family. During such times, I relied on savings, and worse still, credit cards. Forget savings, I struggled with expenses, especially the high home EMI. I wish I was better prepared for such events.

What should have been done instead: An emergency is bad enough, feeling financially helpless during one makes it worse. So, before one invests to grow money, one should put aside essential savings for an emergency. Use your 20% (or more!) saving rule to first of all build an Emergency Fund for unforeseen emergencies or career breaks and buy Health Insurance and Term Insurance to create a fool-proof safety net. Once this is set aside, you can start to invest your savings without the fear of cashing them out during an emergency.

Listen to Theodore Roosevelt when he says, “Make preparations in advance. You never have trouble if you are prepared for it.”

Get Rich 104 – Invest Smartly

I never made an effort to understand how to best invest the money I saved. My money jumped from bank to FDs, to small savings schemes and some poor stock investments. I wish I had explored how I could best make my money work for me.

What should have been done instead: If invested smartly, your money can work for you even while you sleep. Keep the following in mind while investing money –

1. Financial goals – Know how much money you will need and at what point in your life and devise a plan to get there. Best strategies are made to serve specific goals.

2. Financial Literacy – Research about the different financial instruments available, their purpose, when they should be used and their potential returns and risks to tailor a financial investment plan for yourself. Know your money before you grow your money! 

3. Financial Filters – Investing your hard-earned money based only on advice from parents or friends or tips of self-proclaimed “experts” can be dangerous – what worked for them may not work for you! So, listen to everyone but invest based on your goals, risk appetite and research.

Like Benjamin Franklin opined, “An investment in knowledge pays the best interest.”

Get Rich 105 – Risk is “NOT” Ishq

I was terrified of the stock market and mostly stayed away from it. The few times I did invest in “hot” stocks based on tips I picked in office or during parties, I ended up losing money and decided that the stock market was not for me. I shied from all equity investing, including mutual funds. 

What should have been done instead: Equity investing is the best way to get inflation defying returns on your money. Like Robert G. Allen, one of the most influential financial advisors of all time famously said, “How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” So, be open to the idea of investing in the market – but always be aware that, things can go wrong in it. Your investment strategy should reflect this wisdom and should have well-researched, diversified products which can hedge your risks and keep your sanity intact.

Lastly, long-term investment in the equity market allows one to see both bull and bear runs, thereby averaging your returns or the impact of ill-made investment choices. Be patient and do not let a bad phase in the market scare you to quit. 

Bull or bear, the stock market is a wild animal. So, like a Trainer, learn all tricks, arm yourself well and know where to safely stand in the cage – only when YOU want to.

Mark Twain once said, “Twenty years from now you will be more disappointed by the things that you didn’t do than by the ones you did do”. And I exactly know this feeling. While I am trying to undo the poor decisions of the past decades, here is hoping, that my mistakes can be a good lesson for you, as you start on your personal finance journey.

Nandini Swarup