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If you are young, time is one of your greatest allies in wealth accumulation and it is the one resource you will never get more of in the future. After starting out to earn your own living, if you waste the early years saving and investing nothing, they are forever lost.

So that you do not lose out on the precious time you have on your side to start making your money work for you, here is the action plan that you must (may) start with. You are free to modify this action plan to suit your needs. It’s just that this has worked very well for me for the past 10+ years, and thus I am happy to share it with you.

Read carefully what you see below. Try to remember it. Modify it, if you may, to suit your needs. This is what you must tell yourself often when it comes to managing your hard-earned money.

This is like your money manifesto, which should be your starting point in your journey with money.

  1. Pay yourself first – This is an excellent habit to develop early. People who are best set for a comfortable financial future are not necessarily the ones who had the best careers but the ones who had good living and saving habits.

The general equation of saving money is


Income – Spending = Saving


A more sensible equation is


Income – Saving = Spending

In other words, first allocate your savings and only then spend what is left (of course, after budgeting for necessary expenses like food, housing, and utilities).

In terms of how much you should save, start with saving at least 10% of your monthly net take-home income, and gradually increase it to 30% by the end of the first year. The ultimate target is to reach 50% of net income.

  1. Keep an emergency fund – This fund may be 6-8 times your monthly household expense. So, if you spend Rs 20,000 every month to keep your house running, try to set aside around Rs 140,000 as emergency fund – money that will lie in a liquid fund or short-term deposits that you can withdraw in case an emergency strikes.

Also, don’t touch this emergency fund to purchase a gadget, pay down-payment for a car, or fund a holiday. This is sacred money, so please use it only in emergencies.

  1. Buy health insurance – Medical innovations are making people live longer. However, costs of keeping healthy are also on a rise. A doctor’s fee has risen to match a lawyer’s fee!

Thus buy medical insurance – for yourself and your family (spouse, children, and parents). Even if your employer provides a medical cover for you and your family, buy an independent policy to cover yourself in case you have to quit your current job in the future.

The reason you must buy a cover as soon as possible is because the more you delay, the more you will have to pay as premium.

  1. Buy term insurance – No ULIP, no endowment, but buy a term insurance plan.

Of course, you won’t get any money back if you survive the insurance period, but please realize that this is the purest and cheapest form of insurance. For instance, if you are around 35 years of age, you can buy Rs 50 lac cover for a premium of less than Rs 10,000 per year.

See term insurance as a “cash flow” insurance – it will ensure the cash flows your family would need to survive, whether you are alive or not.

  1. Don’t delay saving and investing – Simple calculations show that a 23 year old who puts away Rs 6,000 a year for 10 years at an annual return of 8%, will have around Rs 87,000. If after those 10 years, he stops contributing and does nothing else till he is 60 years old, the portfolio will have grown to around Rs 694,000.

On the other hand, the person who waits until he is 33 to begin investing will need to invest Rs 7,950 for 27 years (till he reaches 60 years of age) in order to have around Rs 694,000.

In total, the 23 year old has to invest Rs 60,000 out of pocket (to reach Rs 694,000 at age 60) versus Rs 215,000 for the 33 year old.

As these calculations show, there are great costs of starting late on the saving and investing path. So you must start early. As early as possible!

  1. Use debt sparingly – Avoid borrowing money to meet your aspirations, except for buying a home. Try not borrowing money to buy liabilities like gadgets, holidays, or even a car. Buy them only if you can use your own money that you may save to buy these.

Even to purchase your home, try to use as less borrowings as possible.

  1. Practice Preparation + Discipline + Patience – These will be your three guiding principles while saving and investing your hard-earned money.

Develop into a lifelong self-learner through extensive reading in your free time; cultivate curiosity and strive to become a little wiser every day. If you want to get smart in your financial life, the question you must keep asking is “why, why, why?”

Try to keep things simple and remember what you set out to do. Also remember that reputation and integrity are your most valuable assets – and can be lost in a heartbeat. So guard yourself against arrogance.

Einstein said that compound interest is the eighth wonder of the world. Never interrupt it unnecessarily.

Finally, enjoy the process along with the proceeds, because the process is where you will live.

  1. Hold on tight to your reputation – It has taken you years of hard work to reach this place where you have become capable to earn your own bread and support your family. Don’t do anything that will destroy this hard work and your reputation.

For that, it’s very important that you take complete responsibility of your money, and never blame anyone when things go wrong.

Never do anything that makes you uncomfortable. If it doesn’t make sense, if you get a feeling in your gut, or if you just don’t understand what someone is asking you to do, just pass on the investment.

Your first objective should always be to avoid major losses. If you can protect your capital, you can always find ways to make money.

  1. Take care of your health – What’s the point of investing in all the assets like skill, knowledge, stocks and relationships if you yourself are not available at the end of those compounding years.


Your health, after all, is going to be one of your biggest financial responsibilities in the future. So start taking care of it right away.

  1. Celebrate life, not money  – Of course, it is good to save and invest as much as possible, please don’t compromise your present for a future unknown.

This does not mean you try to find happiness in spending money. What it means is that in the busyness of earning, saving, and spending, try to celebrate your life…and your accomplishments.

Real success in life is not about what you earn, own, achieve or win but who you will become along the way. Thus, work towards ‘becoming’, not towards ‘having’.

It’s your life and only you can make it large.

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Jonathan Clements, the much respected Wall Street Journal columnist, who retired in 2008 after writing 1,008 columns for the newspaper, said that your savings can deliver 3 key benefits:

  1. If you have money, you don’t have to worry about it – Well, this isn’t something that is guaranteed. I’ve seen a lot of rich men who are always worried about their finances. However, the real idea is that if you save and invest diligently, you should reach the point where money worries are relatively rare.
  2. Money can give you the freedom to pursue your passions – When you picture your financial independence, what do you see? Enjoying your life to the fullest given that you’ve ensured that your family’s needs have been taken care of? Seeing around the world? Working on a cause you are passionate about?

Saving and investing can help you achieve mukti (freedom) from all your financial worries, so that you can attain complete peace of mind and pursue your passions.

  1. Money can buy you time with friends and family – What are we all living for? When I used to work at a job, the best part of my waking hours was when I came home at night…to my family. Now I stay with them 24×7 while also taking care of them financially.

Research has found that regularly being with your friends and family can provide a huge boost to your happiness. And money can help you in this regard.

If you don’t need to work or you only work part time, it helps you spend more time with your family and friends, go on regular vacations with them, and spend lot of quality time in their company.

Anyways, as Clements also said, you don’t usually need millions of rupees in your bank account to spend time with friends and family or pursue your passions.

So if you are disgruntled with how your financial life is going, here’s my advice…

Forget spending more money at the mall – and instead spend more time with friends while saving and investing money regularly.

At the end of it, your bank account may still seem inadequate, but your life will be far, far richer.

That’s the entire point of saving and investing.

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