Invest like a pro: Guide to easy investing for Gen Z

Having a zero bank balance by the end of every month has become a natural occurrence, especially for Gen Z. From investing in SIPs to buying gold, we find parents and relatives lecturing the young, especially those in their early 20s who have recently begun earning, on the importance of saving and handing out numerous investment tips.

Spending money is a skill that naturally comes to many of us, managing it seems like a mammoth task let alone understanding the innumerable investment options available. If you have been breaking your head to get started with investments and have found yourself confused, we have Twinkle Jain, CA and financial content creator simplifying it for you.

Importance of saving and investing
Although it has been stressed enough just how important it is for everyone to save money, the young often chooses to ignore it. Jain says, "Saving is crucial for Gen Z and people in their 20s because it helps create financial security and prepares them for future goals like buying a home, travelling, or starting a business."

She adds, "Investing is vital for young adults as it offers the potential for higher returns and helps grow wealth over time, making it easier to achieve long-term financial goals like early retirement or financial independence."

Starting to invest early allows Gen Z and people in their 20s to take advantage of compounding, which means their money can grow significantly over time due to the power of reinvesting profits. The earlier you start, the more you compound.

The right age to start investing is in your early 20s as soon as you have a stable income and have set aside an emergency fund.

The appropriate way to breakdown your salary
Jain says it is important to break down your salary and allocate specific amounts for specific purposes. "Budgeting is essential. Allocate a portion of your salary for saving and investing (around 20-30%), prioritise essential expenses and limit discretionary spending. Use apps or tools to track expenses and stay within your budget"

The CA lists some easy and safe investment options:

1. Systematic Investment Plan (SIP) in Mutual Funds:
Regularly invest a small amount in mutual funds that are managed by professionals, allowing you to own a portion of different stocks and bonds. To find good SIPs and mutual funds, focus on reputable fund houses with a history of consistent performance. See how the fund manager is, how big of a fund are they managing etc. Look for funds aligned with your risk tolerance and financial goals. Research online and seek advice from financial experts to make informed choices suited to your needs. Start with diversified equity or balanced funds for potential long-term growth and steady returns.

2. High-Interest Savings Account:
Park your emergency fund or short-term savings in a savings account that offers higher interest rates.

3. Exchange-Traded Funds (ETFs):
Similar to mutual funds, ETFs allow you to invest in a diversified portfolio of assets, but they are traded on stock exchanges like individual stocks

Understanding interest rates
Interest is the money you earn on your investments or the cost of borrowing money. Higher interest rates generally mean better returns on fixed deposits and savings accounts. A lot of people choose investment options just by seeing how much interest it would give them.

Buying gold as an investment option
We Indians love our gold. Many Indian households encourage buying gold every month to invest money. But is it really a sensible investment choice? Jain explains, "While buying gold can act as a hedge against inflation and uncertainty, it shouldn't be the sole investment. Gen Z and young adults should focus on a diversified investment portfolio that includes stocks, bonds, and other assets. The younger one is the more risk appetite. Also, rather than gold coins, digital gold, and sovereign gold bond is favourable, as they can save on making charges."

Fixed deposits and recurring deposits as investment options
Fixed deposits and recurring deposits are safe options with guaranteed returns, but they offer relatively lower returns compared to other investment options like mutual funds. They are suitable for short-term goals and low-risk investors.

Safety of investing through a middleman
For many, investing is a hassle. Such people prefer to appoint a professional to manage their investment. Speaking on the safety of that option, Jain says, "Seeking advice from a financial advisor can be beneficial for beginners who are not familiar with investments, as they can provide guidance on suitable investment options based on individual goals and risk tolerance. If you wish to invest by yourself, there are a lot of apps like Dhan and IndMoney that one can use to start investing."

Handy tips to cut down on extra expenses
With new entertainment means, it's only natural to spend way more than one can afford. Further, the ease of UPI payments has led to expenses going unchecked. Jain lists down some easy ways in which Gen Z can bring their spending habit under control

1. Set spending limits for yourself
2. Track your expenses regularly
3. Give yourself a cooling-off period before making significant purchases
4. Use cash instead of paying from UPI
5. Consider the value and necessity of the item before spending, and avoid succumbing to impulsive buying.
6. Create a budget
7. Prioritise saving and investing
8. Limit discretionary spending
9. Avoid impulsive purchases
10 Opt for affordable entertainment options
11. Consider using cash envelopes for specific spending categories

The benefit of holding two bank accounts
Jain says, "Holding two bank accounts can be effective. Have a separate savings account for your emergency fund and long-term savings/investments. This separation can help you track your progress toward financial goals and avoid spending money meant for saving or investing."

If you are someone who has just started earning and has a small amount of income, you can start investing a small sum of money. It rewards you with high returns in the future. Be it buying a dream house for yourself or having a medical emergency covered, saving and investing money goes a long way, especially if you start early.

Also Read: How to file ITR: A comprehensive step-by-step guide for filing income tax returns in 2023