Financial Planning

Financial Planning for People in 20s

Your 20s are the decade where you lay the foundation upon which you build your future life. If you wish to build a castle, you must start laying a solid foundation early on.

But it’s easier said than done.

Your 20s are the most exciting time in anyone’s life – new job, new city, new friends. With so many new things, it becomes very easy to make mistakes. While making mistakes is pretty natural in your 20s, financial mistakes can be costly.

To help you avoid that regret, in this blog, I am going to share my take on how you should carefully plan your finances in your 20s. Let’s get started!


Our early 20s are where most of us land our first jobs, and generally, our initial salaries are low. And with so many expenses screaming for our attention, it can sometimes seem very hard to put aside any money for savings.

Developing and following a budget becomes especially important in this case as it allows you to track your finances and be more disciplined with your money

While it is tempting to develop a really tight budget that maximizes savings, too much of anything is bad. Instead, you should focus on building a realistic budget that you can stick to.

The 80/20 Budget

The beauty of this budgeting method lies in its simplicity. It is a very straightforward method that prioritizes savings.

Here is how it works – you take your after-tax income and divide it in the following manner:

  • 20% for savings.
  • 80% for everything else.

The first thing you do after receiving your monthly salary is put aside 20%, preferably in a separate bank account so that you don’t “accidentally” spend it. This money should go towards your retirement savings (EPF/PPF, NPS), emergency funds, and other investments.

Once you have met your savings target, you are free to spend the rest of the money, however, it can help to further classify your expenses as needs and wants.

Needs include essentials like food, shelter, basic clothing, etc.</P

Wants are non-essentials like dining out, movies, vacations, etc.

The 80/20 budget provides a good framework to start with. I recommend altering the proportions based on individual circumstances to develop a budget that is right for you.

For a person with little to no obligation, saving 20% of total income might be low, on the other hand, for those with greater obligations, saving as little as 10% should do the job. The key is to save at least a portion of your income as this develops a habit that is going to last a lifetime.


I see a lot of people in their 20s compromising on buying proper insurance cover.
Please don’t make this mistake.
I was also in my 20s once, and with young blood rushing through our veins, we can sometimes feel invincible but take a word from a veteran, you can never predict how the future is going to unfold.

Any untimely disease or death can seriously put you and your family back. Not getting insurance is like stepping over dimes to pick pennies; the premium is cheapest when you are in your 20s, and most insurance providers don’t even ask for a full health checkup beforehand. Getting insurance in your 20s could potentially be the smartest decision that you could make.

But which insurance to buy?
I recommend getting 2 types of insurance – life insurance and health insurance.

  • Life insurance:

    Life insurance should only be taken by the earning members. Consider a term plan with coverage of about 20-25 times your annual salary. For example, if your salary is Rs. 5 lakhs per annual, you should get a coverage of about Rs. 1 – 1.25 crores.

  • Health insurance

    Health insurance is essential for everyone, and one should ideally aim for a minimum coverage of 50% of your annual income.

Goal Planning Done Right

You should ask yourself this question – why are you investing?
Are you investing for a sweet retirement, for your kid’s future education, or for a luxury vacation that you always dreamed of – whatever your goals are, list them out on a piece of paper or a spreadsheet and rank them in order of priority. Priority given based on goals being either essential (at the top) or aspirational (at the bottom).

For example, saving for retirement, healthcare, education, etc., should ideally be ranked higher than aspirational goals like buying a luxury car, vacation, etc.
This exercise is important because the importance of the goal determines the appropriate rate of return that you should assume for your goal.

Below is the distribution of Nifty’s returns over the past 20 years:

For long-term goals, people generally assume a standard 10-12% expected return to map out their investments as it is the long-term average equity returns.

However, as you could tell from the table above, only in about 60% of the cases did Nifty’s average annual returns exceed 10%. The rest of the time, the returns were below that.

While 60% might be good enough odds for some, if you are investing for important goals like retirement or your kid’s education, it would be wise to buy some additional margin of safety by taking a more moderate expected return assumption and map out your investments.

For other less important aspirational goals, you could always play around with more aggressive assumptions since it’s much easier to settle for a less luxurious vacation than to face the reality of not having enough funds for your retirement.

Mistakes to Avoid

Inversion is a very powerful technique. Just ask yourself, how can you destroy yourself financially in your 20s and simply avoid doing them.

Here are 3 most common financial mistakes to avoid:

1. Living Beyond Your Means:

If you spend excessively and rely too heavily on credit cards or loans to finance a lifestyle beyond your income, you can end up in long-term debt and financial stress. Creating and sticking to a budget that covers essentials while allowing for savings and occasional treats can help you avoid this pitfall.

2. Neglecting Your Savings and Investments:

Many young adults prioritize short-term spending over long-term financial security. If you delay or neglect savings and investments, such as retirement accounts or emergency funds, you might miss opportunities for growth and find yourself unprepared for unexpected expenses or future goals. Starting small and consistently contributing to savings and investment accounts early can lead to significant gains over time.

3. Ignoring Your Financial Education:

Financial literacy is crucial but often overlooked in formal education. You should at least try to develop a decent understanding of concepts like budgeting, investing, and managing debt.

Blogs/Podcasts Recommendations

1. Safal Niveshak (Blog/Podcast):

  • Website: Safal Niveshak offers insightful articles and resources on value investing, behavioral finance, and personal development. It provides practical advice and timeless wisdom for investors looking to navigate the complexities of the financial markets.

2. Paisa Vaisa with Anupam Gupta (Podcast):

  • Podcast Link: Paisa Vaisa is a popular podcast hosted by Anupam Gupta, covering a wide range of topics related to personal finance, investing, and entrepreneurship. Each episode features expert guests who share valuable insights, tips, and strategies to help listeners make informed financial decisions.

3. Why Not Mint Money (Podcast):

  • Podcast Link: Why Not Mint Money is a podcast produced by Mint, a leading financial newspaper in India. The podcast covers various aspects of personal finance, including budgeting, investing, insurance, and more. It features expert interviews, practical tips, and engaging discussions to help listeners manage their money effectively.


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