Starting Your Career? Here Are Some Financial Decisions You Should Take

By: | Published: June 25, 2016 1:21 PM

A penny saved is a penny earned, goes the saying. This should be your mantra at the start of your working life. It will serve you well in life and help you get over the craving to splurge your hard-earned money.

Buying insurance, securing a home, tax planning, and investment using products such as mutual funds, bonds, shares, etc., and managing one’s debts are keys to prosperity. (Reuters)Buying insurance, securing a home, tax planning, and investment using products such as mutual funds, bonds, shares, etc., and managing one’s debts are keys to prosperity. (Reuters)

A penny saved is a penny earned, goes the saying. This should be your mantra at the start of your working life. It will serve you well in life and help you get over the craving to splurge your hard-earned money.

The prices of commodities rise over time, and inflation has often this habit of growing faster than your income. Unless you’re the RBI governor, there’s very little you can do to curb inflation.

You will have to raise your income levels every year, and learn to manage your expenses with systematic planning in order to increase your standard of living and cover all your known and unknown risks.

These may seem like daunting tasks. But anytime is a good time to get money-wise. If you’re in your early 20s, and starting out in your career with hopes and dreams, it is especially a good time to get started.

Why Start Early?

At the outset, look at your two major benefits for starting planning early. First, you can afford to start small since you’re just starting out, and second, you may have minimal responsibilities at home. Grab these opportunity.
Keep one thing in mind: with due respect to your education, your salary may not grow more than 15-20 percent annually. You have to ensure your earnings are above the rate of inflation.

How To Save & Invest
Managing expenses, cutting corners, saving and investing more are goals every individual should work towards. Efficient financial planning leads to robust financial health, preparedness in any emergency, and all-round prosperity towards the latter stages of life.

Buying insurance, securing a home, tax planning, and investment using products such as mutual funds, bonds, shares, etc., and managing one’s debts are keys to prosperity.

Your aim should be to beat the inflation rate by a wide margin and set yourself short, medium and long-term financial goals.

Buying an insurance policy: Age is such a critical factor to all financial planning. It ties directly to one of the most important tools in your financial kitty: life insurance. Buying a life insurance policy is usually the first step towards financial planning for most people. If you start early, you can secure a high insurance cover with minimal monthly premium. As an illustration, a 22-year-old male with no tobacco habit, earning Rs. 300,000 annually, can secure a life term cover of Rs. 60 lakh by paying an annual premium as little as Rs. 4000. The premium increases with age, therefore one must get a life cover as soon as they start working. This would secure your family’s finances if something were to happen to you.

Building a corpus: As a thumb rule, one should try to put away at least 20% of our income in savings and investments. The sooner we start saving this money, the better for our long-term interests. You could save money with saving instruments such as recurring deposits and fixed deposits (which also give you around 7-8% interest annually), bonds, PPF, endowment plans, ULIPs, debt funds, etc. If you have a risk appetite, you could buy shares or invest in equity mutual funds. Exercise due caution since your income and savings at the start of the career may not be massive. Saving and investing using the above-mentioned tools, you would build a corpus necessary to settle major expenses some years down the line: expenses such as making a down-payment on your first home, buying a car, your marriage, etc.

Managing your debts: In long-term financial goals, you’re certain to have the challenge of managing your debts at some point. Financing one’s higher education, and the purchase of a home or a car, through bank loans is very common, but it is absolutely important to have your finances in order so that you’re able to pay off your debts in a timely manner. Debts could help you achieve your career goals if you use them judiciously and without over-leveraging your financial capacity. Try to use spare funds to settle your debts and avoid paying high amounts on interest.

Tax and investment planning: Rise in income is a reason for joy. However, with inadequate tax management, growth in income can also become a hurdle. As a salaried person, you get income after deduction of taxes. But with smart investment planning, you can minimize your tax liability, and earn tax returns.

Investing in government bond, especially infrastructure bonds, PPF, monthly investment in SIP (systematic investment plan) with mutual fund, are all the options that could help you to curtail your tax liability and also earn handsome returns from investments in the long term.

What matters most: What matters the most is time. Respect time and what it can do to your money. Take time out from your busy schedule to set yourself financial goals. If you find the fine prints of financial products confusing, you must consult a financial and investment advisor for better insight.

The author is CEO, BankBazaar.com

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