Seeds of Prosperity: A Beginner’s Guide to Invest money in Your 20s

Entering your 20s comes with a wave of independence – earning from your first job or a small business venture marks the beginning of your success journey.

Your newfound confidence speaks volumes about the path you’ve embarked upon.

Yet, amidst the buzz of financial freedom, you’re bombarded with advice on spending and managing your money.

It’s easy to feel a bit overwhelmed with so much happening around you. On top of that, there are personal responsibilities to juggle alongside your work commitments, making financial decisions even more crucial.

Now, let’s talk about, how to invest in your 20s or start to invest early. It’s common for beginners to feel a bit lost amid all the excitement and confusion.

What do you do with the money in hand? How can you make it grow over time? These questions can lead to procrastination, causing you to delay investing in your most valuable assets: your money and time.

So, here’s the deal: don’t let the excitement and confusion hold you back. In your 20s, you have a unique advantage – time. This is the moment to learn the basics of investing and make your money work for you.

But where do you start, and how should you allocate your limited funds for future financial planning? Let’s explore the smart moves that will set you on a path to financial success.

How to plan for your expenses to invest money in your 20s?

Invest money in your 20s
Track expenses

It is very easy to carried away by the materialistic things around you and it is only you who can control over your decisions to spend your hard-earned money.

Thus, you have to plan your expenses and articulate plans for bigger expenses like, buying a car.

Do not rely on the loans and buy things mostly by taking loans from banks and other people. For instance, you wanted to buy a Rs. 8,00,000 vehicle and you just have Rs. 1,00,000 as savings for down payment.

Then, you should plan to buy a used or second hand car of the same model or segment, which will reduce your total expenditure by 40% to 50% and save on EMIs too.

Secondly, if you really want to buy a brand-new car then buy car of around Rs. 5,00,000 only, else, you would be end up paying EMIs for precious initial years, just show off your colleagues and relatives.

Remember, do no buy things by taking loans too much, at least have 50% for the down payment, even, for early financial success that is also not advisable.

We will discuss this in detail that how valuable your income, as a raw material, is to provide you financial independence early in your life and systematically invest money in Your 20s.

Make a Budget to save and invest money in your 20s

Always, formulate a budget around your income and then spend money. The important parts of you budget should be the list of expenses you would incur in a month and savings you would be doing in a targeted manner.

There are several ways you can create a budget for you, so that you would know the inward and outward of your money flow.

Here is a basic format you may use for budgeting your cash flows as an indication:

3  Ration6000
4  EMI8000
5  General Exp.6000
Know your cash flows

Importance of Budgeting in early 20s

Most of the families do budgeting because there are many types of expenses but even if you have just started to earn, it very important to know your money flows before you invest money in Your 20s.

Here are some of the benefits of making budget:

Track your expenses:

By budgeting you can track your expenses and what are those biggest expenses you have to carry out each month.

Secondly, what are those expenditures which are on the increasing trend, for instance, eating out can be growing because you used to eat at home and now you are at a new place to work and you have to take care your food expenses.

Set your goals:

You should set your goals for spending in a month in terms of percentage and try to defend that line to be able to save.

Importantly, you should also set a target to save a certain amount of money each month, be it in your saving bank account or a recurring account for targeted amount of saving.

Create an emergency fund:  

As you have now experienced how you have to spend for your own and dependents, if any, then save money in saving account which is equal to your at least six months of expenditure. You can straightway calculate this amount by multiplying your average monthly expenses multiply by six. And not withdraw this amount unless there is a extreme emergency.

Reduction in your unwanted expenses:

As you track your expenses each month you will come to know about some of the irregular but unwanted spending, which you did not plan at the start of the month.

For instance, you may be going out for once or twice in a month but due to peer pressure you have started to dine out and casual spending on a regular basis in a particular month.

You should straightway cut out from that group, because it is repeated each month that will become a part of your lifestyle later and difficult to end in future and avoid hampering your targeted savings each month for better future.

Automate your savings:

 As mentioned earlier, you should save regularly by way of recurring deposits or debt liquid mutual funds though systematic investment plans.

Also read: Best Mutual Funds to Invest Now

This saving will be done through SIPs every month and at the start of the month or on our desired date, a particular amount will be deducted from your account and invested in above saving avenues, without your intervention or effort or even emotions in the way for deciding, whether to save or not.

This systematic approach towards your savings is the best solution for a targeted saving goal for a particular period, say, for a down payment for buying a house or a car.

Create a Risk Management Plan

Risk Management Plan
Create a Risk Management Plan

As a risk management tool, you have to cover your financial risks by way of tools available by various sources, such as, insurance and savings.

Here are some of the basic risk managements ways by which you will be able to cover financial risks in your life before starting to invest money in your 20s:

Emergency or liquid Household Fund:

As discussed, in brief, the most important fund, we all need is an emergency fund, which should always remain in cash or cash equivalent deposits or in liquid form, available for immediate disposal.

The emergency fund should be created as a contingency fund against the risk of losing a job or loss in the businesses, so that, this fund comes to rescue for some period for your family.

This sum of emergency fund varies for each one of us, depending on our lifestyle expenses. Thus, you need calculate your monthly household expenses, such as, groceries, rent, transport, school fee, including those, which occurs in a year.

For instance, car service or premium payment of insurance, may not be a monthly expenditure, but those need to be included in the monthly expense list, proportionately.

Resulting, you will come to know about a monthly figure, which is your average 12 months expenditure.

Now, you need to have reserves of at least 6 months to 9 months expenses as an emergency fund, so, multiply above monthly figure with 6 or 9 depending upon the vulnerability of you jobs or business risks, to pay your household bills for that period, whilst, you search for next employment opportunity.

Life Insurance for risk of ‘Dying too early’:

First and foremost, one needs to have risk cover for his or her precious economic life because, there may be lives depending on that income and to ensure their financial security.

There can be lot of dilemmas, while selecting a best life insurance policy for you, which will cover the risk in case of a death of the income generator in the family.

So, here, we are talking about pure life insurance risk cover, not an investment plan. Thus, it is important that you buy a Term life insurance policy to get maximum amount covered in lowest possible cost.

And, you should buy a term insurance early in your life till the time you have your economic value or retirement age.

You may also add an accidental death cover, which costs in fractions but doubles up the death cover, in case the death happens due to an accident.

Most importantly, it is the Term Insurance Policy which is only life insurance needed, for as much as risk cover at a much lower cost, as compare to above mentioned names.

Health Insurance:

Hospital expenses can be exponential for curing a major injury or a life-threatening disease. A health insurance policy can save you from that huge bill shock.

Heath insurance policy can be bought for the whole family of dependents in a single policy or at individual level. While buying a health insurance policy it is important to check the exceptions and conditions. If you want to cover your parents, buy their individual health insurance policy.

Important point here is that, buying family health plan for a younger family, is a good idea to start with, however, as the age of the parents grows, it is prudent have individual health plan for each family member, to further cover the risk from health issues at a later age.

Medium Term Backup Fund:

Similar to the emergency fund, this fund is also calculated based on the monthly expenses of a household. But the amount should be accumulated for 12 to 18 months of your monthly expenditure.

Firstly, this amount is not required to remain in a liquid or cash form but in a bank fixed deposits or similar avenue, but with the option to withdraw in few days of notice.

Also, as a fixed investment avenue with low risk of loss of capital, this amount should be invested in bank fixed deposits and top-rated medium-term Debt mutual funds.

These deposits will earn more interests and capital gain, than the cash or saving account and grow bigger corpus of money in some years to ensure your financial security and to invest money in your 20s.

Create an investment plan to invest money in your 20s

Now, when you have taken required risk cover and created emergency funds, you can proceed towards building corpus of money for your financial goals.

Invest money in your 20s
Invest money in your 20s

First, you should think about your long-term financial goals and list down with a target amount and the date on which you want those funds, to be able to realise your goals.

Here is an indicative format of a financial goal planning, which you can create for yourself:

Financial TargetsPeriodCurrent ReqInflationFuture Req
Buying Car3 5,00,0006% 5,95,508
House down payment720,00,0006%30,07,261
Travel abroad42,00,0006%2,52,495
Plan for future goals and note down amount.

In the above table, some of the goals are mentioned hypothetically, you may change and customized as per your goals of the future to invest money in your 20s.

Remember, all the above headings are the minimum data you have to capture about your financial goals and goal name, period and future value should always be considered to ascertain the approx. amount you require.

This rate of inflation will be deducted from your yearly growth your funds, because, inflation eats out your savings due to increase in general prices of houses, cars, education and others.

Resulting, the sum of money for a goal should be calculated according the present prices adding annual inflation rate, to ascertain the real amount required in the future.

Where should you invest money in your 20s?   

You have understood about how to develop and set your financial goals, in the form of sum of money required at definite period of time. Now, next step is where to invest your money intelligently, so that you reach your goals comfortably and get maximum returns.

First, you should split your financial goals into different timeframes, based on years, as shown below:

Short Period Goals in 3 years or less
Medium term Goals in 3 to 5 years
Long term Goals in 5 to 10 years
Very long term 10, 20, 30 and so on.
Types of goals according to the time

Based on the time period mentioned above, you can allocate your investments into different asset classes to invest money in your 20s. Because different assets have different risks and return expectations and we can invest in those assets accordingly.

Generally, short period financial targets are allocated to very low risk and decent returns asset classes, such as, fixed incomes or bank fixed deposits.

However, if the financial goals have more than 10 years to complete, you can go for high risk and high return assets classes, for instance, equities markets.

Secondly, there are different assets classes to invest money in your 20s, for best results for your financial goals are given below:

Type of Asset classes
International Equity
Real Estate
Assets for Portfolio allocation

Finally, I have made a model Asset class matrix, across the various time periods, for more understanding, clarity and simplicity to invest money in your 20s. Resulting, you can set your financial goals yourself and develop a similar model for your successful financial life.

Below is the matrix you may follow for goal planning and to invest money in your 20s: –

Goal PeriodTimeframeTarget Investment Options
Short Period Goals in 3 years or lessFixed deposits, Government securities, Debt Funds: short and long term and Bonds.
Medium term Goals in 3 to 5 yearsBonds, Fixed deposits, Hybrid Mutual Funds, Long term Debt Funds, corporate bonds, debentures and Gold.
Long term Goals in 5 to 10 yearsLarge Cap Mutual Funds, Long term Debt Funds and Multi cap Funds, ETFs, Index funds, Gold and Real Estate.
Very long term 10, 20, 30 and so on.Multi Cap, Flexi Cap Funds, Stocks, Mid and Small Cap mutual Funds, ETFs, Index funds, and partially in real estate and gold.
Invest money in your 20s

Important to note that there are some of the investment classes not shown in every type of investment period, that is because of their nature of risk and volatility.

For instance, equity related assets, such as, direct equity and mutual funds, will be a risky investment in less than 3 years period. 

Moreover, there other asset classes, like, art, wines, crypto currencies and other valuable assets, which are not considered here, due to limited history and expertise to invest.

Points to Note to invest money in your 20s:

  1. Try not to mix insurance with investments because it fails both of the objectives of risk cover and return on investments, due higher charges and low long-term returns.
  2. Most importantly, you must always want to your own risk assessment and accordingly take risk cover, such as, term life insurance, health insurance and others, to protect your family financially.
  3. Do not tamper with the investment plan due to short term difficulties in your finances or up and downs in the investments returns.
  4. Allocate all your investments to the fixed deposits of safe heavens before 1-2 years of your financial goal target year, to eradicate any uncertainty in the overall returns.

Track your investments after 1 to 2 years, to check the performance of the schemes you invested in. If required, change the scheme but in the same type of asset class.

Fast-track your Financial Goals !!

successful investor
Fast track your financial independence

Increase your savings:

Nevertheless, if you fall short of your monthly required investments, then you must increase your savings to invest more for successfully accomplishing your financial goals, because future cost will be higher from the present stage.

Make a Budget:

Making your monthly or weekly budget for household expenses and savings brings you visibility towards your financial goals. Write down every income and expenditure. Target your expenditures in a month and try not to exceed those, additionally, target the amount of savings you will be doing every month.

Reduce your Debts and loans:

If you want to accelerate your investments and reach to target goals, you must reduce your debts, which will result in more cashflow for you and avoid unnecessary interest cost.

Build your assets, which will fetch you money, such as, real estate for rental income and equities for dividends and good returns. Reduce liabilities, such as, expensive cars and gadgets, their value will erode over time. Distinguish between your needs and desires and avoid unwanted desires to save more money and to invest.

Invest Bonuses and extra incomes received:

There are good chances that you get a pay hike and bonuses, or increase in profitability in your businesses each year. Step up your investments every year periodically by 10%, without thinking about the market conditions and best time to invest.

Invest in yourself:

Skilling and re-skilling yourself to remain relevant to the job market and learning new age skills, such as, digital, data, graphics, marketing, business transformation and others will also help to build your side income.

Leaning new technologies will make sure your future cash flows remain intact and even enhanced to invest more towards your financial goals.

Key is to be Consistently investing for long period of time:

There are no magical or specific pathway to achieve your financial goals faster, what matters is your consistency and invest money in your 20s your funds for long period or target period of time of a goal. This is because of compounding effect on your investments, meaning, interest on interest, will add to the acceleration towards your target amount.

Equities have given best returns in the past decades and not too difficult to track its performances, you may invest in mutual funds, ETFs, Index funds and so on.

On an average, equities have given 14% returns in the last three decades in India and almost 7% in U.S.

Finally, calculating the retirement amount by just investing Rs. 5000 per month, you will be amazed to see the amount you accumulated after 30 years with above mentioned equities returns:

ParticularsInvest 5000 each month, for 30 years, @14% ROI
Amount invested₹ 18,00,000
Est. Returns₹ 2,59,85,278
Total Value₹ 2,77,85,278

Just starting to invest money in your 20 and increase period by 5 years, you can accumulate ₹ 5,61,62,430 which is more than double of corpus made in 30 years.

Thus, as shown above, to invest money in your 20s and investing regularly for a long period of time, will make fortunes for you, due to compounding of your returns. And follow below steps:

  1. Start investing early.
  2. Start even with a small amount.
  3. Save as much as possible.
  4. Reduce your lifestyle expenses and focus on your needs.
  5. Select best investment options and gradually, invest in different but best asset classes to diversify.
  6. Target each investment accordingly to your financial goals.
  7. Invest regularly and automate your investments.
  8. Stay invested for long period of time.
  9. Do not withdraw money before targeted period, to allow power of compounding.
  10. If you are not able to make financial decision yourself, hire a Financial Advisor.


You must understand money is the raw material to make more money, so, save & invest money in your 20s and grow your money is the name of the game.

Moreover, investing is something you have to learn and understand to invest your money in the best and suitable avenues to grow your money at a better rate than the inflation.

Always keep track of your net worth and building wealth even from a small base and invest regularly and stay invested for long period of time for faster financial independence.

Disclaimer: This is not a direct advice to anyone. Do consult with with your financial advisor for making all your financial and investment decisions.

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