If you’ve just started working, you must be relishing the feeling of newly-acquired financial independence. The ability to finally spend your money on things you like without having to ask anyone cannot be described in words. However, it’s not difficult to get carried away at this stage and stack up wasteful expenses that might undermine your financial future. It’s your money, after all, and you need to use it responsibly. So, you would be well-advised to start taking certain steps that will help you lead a financially disciplined life – something that will hold you in good stead when you’re required to fulfil bigger financial commitments as you grow up. We’ve discussed some money-management steps on how early jobbers can make the most of their salary.
1. Pay yourself first
This might sound a bit clichéd but it’s a very effective financial strategy nevertheless. “Paying yourself first” simply means the moment you get your salary, you should first save up a portion of it, and then use the remaining amount to fund other expenses – both your ‘needs’ and ‘wants’. Not save whatever is left at the end of the month.
2. Set a budget to cut down wasteful spends
Making the most of your money doesn’t mean spending it all on frivolous things. So, plan all your expenses by first creating a budget. If notebook and pen is not your style, you can take the help of any of the budget-tracking mobile applications out there. Once you have a clear budget, you will be able to identify areas where you can cut down. Here are some tips you can use: Move in to a cost-effective shared accommodation to save on rent. Start cooking at home. Reserve cab rides only when there’s no other option. Use public transport or bikes for daily commutes. Try to cut down on other lifestyle expenses like multiple streaming channel subscriptions, expensive data plans, video game titles, etc.
3. Protect your savings
Once you’re in the habit of saving money regularly by implementing your own money-management strategies, you need to start taking steps to safeguard your precious savings. The first thing you need to do is to build an emergency fund which should be worth at least 3 months of your expenses. This money would come to your rescue if something unexpected happens – like a job loss or a family emergency. You can park this fund in a savings account (for quick accessi
bility during an emergency) or in fixed deposit to grow your money which can be liquidated in minutes after losing just 1% of the interest value.
Medical emergencies in these times of skyrocketing hospitalization costs often lead to draining of precious savings or emergency fund. The best thing to do is to go for a comprehensive health insurance plan which will cost a lot less in annual premiums if you start young.
4. Prioritise clearing your student LOAN
If you took the help of an education loan to complete higher studies, you should make it a point to clear it as soon as possible with the help of your savings. These loans will snowball over time if not repaid on a regular basis which may lead to accumulation of debt and even an impacted credit score.
5. Start setting financial goals
You must start setting financial goals to extract maximum value from your savings. Once you have a clear plan, it gets much easier to remain disciplined with your savings targets. You should set realistic short and long-term financial goals against clear timeframes.
6. Start investing according to your financial goals
You may realise that your savings might not be sufficient to meet your financial goals. You also need to invest to minimize your income tax outgo and to grow your wealth over time. Some of the investment instruments you can consider include:
Recurring Deposits or Fixed Deposits: Guaranteed returns that are more than savings accounts, available in tenures ranging from 7 days to 10 years. However, a 10% TDS is deducted if the FD interest is more than Rs. 10,000 in a financial year. If your income is below the taxable limit, you can avoid this by submitting Form 15G/H. If you don’t have a lump sum to invest in an FD, consider going for monthly investments to a recurring deposit.
PPF: Highly tax-efficient PPF is great for long-term financial goals and offers guaranteed returns that get compounded annually. Equity-linked Savings Schemes: Invest in mutual fund ELSS plans to save on tax and earn moderate to good returns based on your chosen fund’s performance. Consider taking the Systematic Investment Plan (SIP) route to mitigate risk. However, these are market-linked schemes and hence carry moderate risk. (The author is CEO, BankBazaar.com)