Its June and most of the recruits from the campus would have joined or going to join in few months on their first job. Its a moment to rejoice and for many a first time experience of earning money. But Net-worth of a person is not by what he earns but by what he saves and invests.
Work for money but also learn how to make money work for you!
Here are some pointers on what you should do after you join your job.
Pay your Petty Debts
While passing out from campus many people tend to overspend on few rounds of booze party and much more :). As most of these expenses are not budgeted for – people generally borrow from friends or close relatives/cousins. The amount is not huge but you should pay all those dues in next few months. They not only give credibility about your financial discipline but also have options open in case of financial emergencies in future. This also includes the small shops and eateries around your institute.
How to Pay 0 Income Tax on Salary of Rs 20+ Lakh?
Salary components and salary structure plays a very important role in how much income tax you pay. We have come up with some optimised salary structure using which you pay NO income tax even with CTC of more than Rs 20 Lakhs.
Get Health Insurance
Most companies offer group health insurance to their employees – free or paid. Even if it’s paid, opt for it. As employers are big customers for these health insurance companies, settlement of claims is easier. Also include your parents if they do not have health insurance cover. In most cases, the employer provided insurance turns out to be cheaper and covers everything without much exclusions/complications. In case of any dispute your HR department can negotiate with the insurer. The added advantage you save tax on premium paid for health insurance for self and also for your parents.
Build you Emergency Cash cushion
As you have started earning, the expectation is you would not want to ideally borrow from your friends or family. So start saving for emergencies. People fall sick, bikes/cars break down, salaries are delayed or you might need to take an urgent trip. Start putting some amount in savings account or fixed deposits every month which can be easily accessed at the time of emergency. Depending on your support system and access to credit card you should try to have emergency fund equivalent to 3 to 6 month’s expenses.
Get Term Life Insurance
Life insurance premium is cheaper at younger age. Also getting life insurance is easier as you tend to relatively healthier and disease free at younger age. You need insurance only if you have dependents or have loan outstanding. Also do not get conned in investing in ULIPs/traditional life insurance plans. Go for online term insurance only – it would be cheaper and there are less chances of error while filling the form. Here are some helpful tips on buying life insurance.
There can be several short, medium and long term goals. Short term goals might be buying yourself bike/car, medium term might be saving for marriage/paying education loan and long term could be saving for retirement. These are just examples and you can start listing down your own goals. Start saving and investing accordingly. Consult investment experts in case it seems too complicated. Here are some tips:
- Parents/Relatives advise may not be always helpful.
- Open a PPF Account.
- Get KYC done for Mutual Fund and start SIP. Short Term Debt or Liquid Funds for short term goals and Equity or balanced funds for long term goals.
- Stay away from LIC Policies and Insurance Investment Products. Get Insurance only for risk cover.
- Bank Relationship Officers are not your investment advisers. Be careful from unsolicited advice. Do your research before putting your money.
SIP Vs. Lumpsum – Which is the Best way to Invest in Mutual Fund?
There is always a debate on what is the right way to invest in Mutual Funds – SIP or lumpsum? We give you examples and situations on which of the investment method outperforms. Do read SIP Vs. Lumpsum – Which is the Best way to Invest in Mutual Fund?
Additionally Read about common myths about SIP investment in Mutual Funds
Learn Income – Saving = Expenses
Most people believe that Savings = Income – Expenses which means there is no plan to save – whatever is left after all expenses is Savings. You need to change this attitude – make your investments (Savings) first and manage your expenses from what is left. You would be surprised that in most cases you would be able to manage. If you find it difficult to invest, automate the process – start SIP in Mutual Fund or invest in Recurring Deposit. The amount would be automatically deducted from account and you would be surprised to learn that you can still manage your expenses without any considerable impact on your living standard.
Plan your Taxes
In the earlier years people are careless towards taxes. It would be helpful if you start tax planning early. Do not rush to buy ULIPs or insurance products at the last moment in the name of saving taxes – most of them are toxic products and you’ll regret it later. Tax saving should go hand in hand with overall investment plan.
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Are you worried that you are paying too much in income tax? Are you aware of all the changes in the tax laws? Where should you invest to save taxes? Do you know all tax sections that you can use to save your tax. Download a concise 43 page presentation free to answer all the above questions and save your taxes – legally.
Also many companies offer flexible salary structure. Balance your components so that you can save maximum tax and still get respectable take home. Internet is a great medium to start your research!
Track your Income, Expenses and Investments
Make habit of noting down all your expenses, income and investments daily. You might find it difficult to start but once you practice it for few months – it becomes a habit. This would help you not only in proper allocation of funds in future but also help you in planning ahead and save lot of money. Personally I use excel to track these but you can use apps or any other tools to track these.
Invest in Yourself
Your skills and education are most valuable assets. Invest money to keep your skills updated. Don’t hesitate to pay for certification and skills that can help your career growth. These investments pay you back many times over.
Get a Credit Card
You should get yourself a credit card. This not only serves as instant source of credit in emergencies but also helps you build your credit score. But remember credit card is like double edged sword – if handled carefully you can save money but if you are reckless with it – you’ll hurt yourself badly. Use the card only if you can handle it and always pay balance in full at the end of month.
Save to Buy Things you Really Desired
As a student you might have desired to buy some fancy gadget or travel to your dream destination. Save for these goals. Do not give in temptation to borrow and buy. Delayed gratification is a great habit and would be financially very rewarding.
Best Investment to Save Tax
Section 80C offers more than 10 investments where you can invest to save tax, However many a times you need not actually do this investment as its already covered due to expenses like children tuition fee or automatic EPF deduction for salaried. In case you are new to taxes and investment do read our helpful guide on How to take maximum advantage of Section 80C and choose the best investment to save tax.
Practice “Do it Yourself”
Believe and practice “Do it yourself”. The good thing is you just need internet to learn most of things. There are thousands of videos online which teach you right from cooking to fixing your household items. Learn as and when required. It not only saves you hassle of looking for specialists to fix small issues but will save a good amount in long term.
Build Multiple Income Stream
If possible you should look for opportunities for second income. You can start blogging, do freelancing, give tuition or teach as guest faculty. These not only help with some extra income but also help you keep engaged and kill boredom. You never know it might lead you to discover talent you never knew you had.
Avoid Long Term Financial Commitments
You have just started your career and you might not even know if you would stick for long. A few months down the line you might want to go for further studies or shift to a different location or change your company. So avoid long term financial commitments like buying home or investing in products which require large contributions for longer period of time.
Over to You
There might be several other points which might not have been covered. Please help us add more.
I have listed some pointers which might be helpful for first time for first time earners. But remember everyone’s life/goals are different and so they have their own plans to get there – no path is right or wrong – choose what suits you. Remember its “Personal” Finance! Over to you 🙂