Financial prudence is cheaper & easier than you think. Enjoy this giveaway!
The excitement and nervousness of one’s first job is incomparable to anything else. It is a heady mix. On one hand, you are eager to start a career and begin earning money of your own. But on the other hand, there’s also the fear of screwing up badly. Of course, that fear is temporary. You will get over it and do well in your first job, no doubt about that. A first job is special not only because it is the stepping stone to your career, but also because it puts you out in the real world and teaches you to handle the ropes of life. And amidst all of that, it is easy to miss out of some essential financial planning that you should be kickstarting along with the start of your career.
These tasks are as important as doing well in your job. They will hold you in good stead through your entire career. So, as soon as you begin earning money, you should make sure you start these financial tasks as well. Maybe not immediately when you start earning. It’s completely alright to splurge away your first two or three salaries. Go buy that bag you had your eye on, or those clothes you want in your wardrobe. But once you have satisfied your fancies, these are the three financial tasks that you should do.
1. Get insured
We have previously written extensively about the importance of buying insurance at an early age. You can read that here. This is true for not only life insurance, but health insurance as well. The younger you are, the cheaper insurance is. And easier to buy too, because there will be fewer complications.
But while term insurance is something most people buy, health insurance is more often than not ignored. This is a big mistake that people do because most companies offer health insurance to their employees. Hence, you wouldn’t think of buying a policy of your own. But you should. Relying solely on your company’s health insurance can mean that you will be uninsured between jobs. An illness at that time can mess up your finances. Avoid such a situation by buying insurance of your own and as soon as you can.
2. Plan your taxes
The government wants you to pay tax on the income you earn, but it is also kind enough to allow you to save taxes. You should make the best of this kindness. You can get more money in hand every month just by planning your taxes properly. Your employer will ask you to declare your tax-saving investments and expenses when you start the job. Doing so is important because it will mean less TDS is deducted from your monthly salary.
You can invest up to ₹1.5 lakh in a year to save taxes under Section 80C. Some of the popular options that you can choose from are:
- Public Provident Fund
- Equity Linked Savings Schemes (ELSS)
- Fixed Deposits
- Unit Linked Insurance Plans (ULIPs)
- Look at this comparison of these products:
Of course, your Employee Provident Fund deduction qualifies under this ₹1.5 lakh. So does your life insurance premium. And since you have a long working life ahead of you, a majority of this ₹1.5 lakh should be in ELSS funds. These are equity-oriented mutual funds that can give you the highest returns over the long-term.
So make the investment, and submit the proof to HR when they send in a reminder for it. It is the easiest way to save taxes that you will ever come across.
3. Start an SIP
An SIP can literally be the gateway to all your dreams and aspirations. An SIP is a systematic way of investing in mutual funds that allows you to ride out the volatility and inculcate the habit of saving and investing as well. An SIP allows you to invest a fixed amount every month before you are able to spend it. This habit can be of great use as you go ahead in your career and life. We have written about this in the past on how just 1000/- per month can be magical!
The best way to start an SIP is by linking the investment to a goal. The goal could be anything from a Euro trip to your marriage to that first car or going abroad for a degree. Investing for a specific goal will help you ensure your investments perform better.
4. Avoid the Debt Trap
The first credit card or easy access to a personal loan might make everything that you want to buy easily accessible. Do not fall for that trap.
The interest that you pay on your credit card rollovers is ~40% per annum! And personal loans are again expensive. The interest outgo can possibly make your cost double.
Get a good card that has a good rewards program but pay up promptly. Get a card with zero fees, for life.
5. Avoid Fixed Deposits or Recurring Deposits
While your parents have saved up in FDs/ RDs, they should not be the instruments of choice for you. To know more read here. They are bad on taxation, returns, liquidity and ease of usage.
If you want to have some money easily accessible, park the money in liquid funds. It is the hidden trick of investing that no one talks about. For anything that you do not need for a few months, you can just park your money in a debt based safe Mutual fund portfolio.
These are the five things that will take you a long way in your career towards financial independence. They will help you stay prepared for exigencies and make you less dependent on a monthly salary if you ever wish to change your line of work or set up your own startup. So make sure you don’t procrastinate on any of these any more. And of course, all the best for this new and exciting phase of your life!