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Financial planning for young professionals: Making the best of earnings

Sep 23 2013, 14:52 IST
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Young professionals need to make a small contribution towards retirement planning to have a sizeable amount by the time they reach the age of 50. Young professionals need to make a small contribution towards retirement planning to have a sizeable amount by the time they reach the age of 50.
SummaryThis workforce needs to draw up the right financial strategy right from the beginning.

On an average approximately 4 to 5 million new professionals below 25 years of age join the workforce in India every year. This workforce needs to draw up the right financial strategy right from the beginning in order to make the best of their earnings while not compromising on the lifestyle that they desire and deserve.

Rahul, 25, is a young IT professional who earns about Rs. 3 Lakhs a year, is single and lives with his parents. His father is currently in employment.

Life is pretty cozy for Rahul as he does not have any family commitments and earns a decent amount of money to enjoy a relaxed and fun lifestyle. However, it is important for him to give a serious thought to planning out his finances for the future. Here are some of the aspects that he must cater for during these carefree days of bachelorhood.

Start Saving Early

With all the primary household expenses taken care by this father, Rahul could easily save up to 25% of his earnings right from the beginning. This will enable him to tap the power of compounding with this savings in the long term.

Long Term Investments

He can choose debt investment instruments that offer tax rebate as part of a long term investment plan. He could also explore options like ELSS and also opt for SIP in order to even out market fluctuations in the long run. This works best for young professionals who do not have many financial commitments.

Health Insurance

Though youth is synonymous with health and fitness some ailments and conditions come unannounced for which Rahul will have to plan. For his needs, taking a health insurance cover of Rs. 100000 with a premium of Rs. 10000 annually will be adequate and also provide tax benefits under Section 80D.

Credit cards/ Debts

Rahul will need to use credit cards judiciously, make regular full payments and avoid high interest rates.

Emergency Funds

This is a must in case of sudden emergencies like a job loss, a family emergency or other critical situations.

Rahul is now 30 earning an income of Rs 6 lakhs a year. He is now married and his father has retired.

Marriage heralds the beginning of financial responsibility as one starts a family. Additionally in the case of Rahul his father is living on his pension. He would now need to become more responsible and also be in a position to extend any financial support needed for

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