Getting your first salary is always a heady feeling. The first instinct, of course, is to splurge and spend on things you have wanted to—with your own hard-earned money. Once the euphoria wears off, you have to start thinking ahead and saving up for the future. The sooner you begin saving and investing your money, greater the returns since with increasing age comes greater responsibilities. Becoming financially secure should be among your top priorities.
Think about your future goals and set aside some money each month from your salary right from the beginning. The longer your money stays invested, the higher your returns due to the power of compounding. Once you begin earning, you should know how much money you are spending each month, and where. It is important to create a monthly budget so you don’t overspend.
Good credit score
During the early years, the feeling of earning your own money and spending as you like can be heady, and there can be a tendency to revolve your credit card dues or delay payments without thinking of the consequences. These can affect your credit score and hamper your ability to take a loan (such as home loan) when you really want to. Learn to live within your means and avoid maxing out your credit cards. Try and avoid revolving credit or using the cash withdrawal/EMI option on your cards wherever possible.
File your income tax return
Depending on your salary slab as you begin earning, you may or may not be liable to pay income tax. Spend time with your company accountant / CA and understand how salary calculations are done, and how you can save tax. Remember, tax deduction by your employer is not enough. You still have to file your income tax return, usually by July 31 each year. Do not wait till the last day to do so. Give yourself enough time and file your return in advance.
Over the years, medical costs have been on the rise, and a health insurance cover is a must-have now. The earlier you get it, the better. When you are younger with no pre-existing diseases, you pay a lower premium. If you have financial dependents, you can also consider getting a life insurance policy. Both life insurance and health insurance (self, dependents, parents) premiums are also eligible for a tax deduction.
Diversify your investments
When you begin earning, your parents are likely to suggest putting some money in a bank fixed deposit—the tried and trusted investment option for most Indians. However, the interest is taxable and along with the inflation factor, the returns aren’t so great. You can consider other investment avenues as well, like real estate, gold (physical or ETF), PPF, NPS. Equities are one option that can give a boost to your investment portfolio. If you’re not comfortable investing in stocks, you can look at equity mutual funds. There are tax saving funds as well, and you can invest via a Systematic Investment Plan (SIP), which helps you plan and save for upcoming spends. Nobody can predict the future, but you can try and be prepared for it. Whether it is loss of your job or a family/medical emergency, having an emergency fund can help you avoid a financial crisis. Set money aside from your salary each money for this fund. The amount depends on your lifestyle and should take care of 6-8 months of living expenses and commitments. It should also be easily and quickly accessible when needed.
The writer is COO and co-founder of Walnut App