November 17, 2017

Sreekanth B

Personal Financial Management Tips For First Job

First job is a very important milestone in one’s life no longer is one a student, but you are earning, and with it comes financial freedom. However, it is important to keep in mind that this is only the first step towards financial planning and meeting your goals and dreams.

Planning your finances from the time you start earning will ensure that your savings benefit from the power of compounding.

For example, if a 25 year old saves Rs. 1,000 per month at 10% interest, your corpus will be around Rs. 10 Lakhs when you are in your mid fifties.

On the other hand, if one starts savings Rs. 1,000 a month at 30 years (with the same 10% interest), the corpus after 30 years will be only Rs. 12 lakhs.

Hence, it is advisable to start allocating money towards savings & investments as early as possible.

The first step to your financial plan is to prepare a budget based on both current and expected income and expenses. It is very important to understand and monitor one’s cash flows, i.e. from where the cash comes in and where it gets expended.

With regards to income one should also be sure of how long that particular income stream will last. Also it is very important to factor in inflation into the budget.

The next thing to do is to chart out your goals, such as buying a house, marriage, etc. Then split these into short, medium and long term goals. One should also take a deeper look at one’s investment personality and assess how much risk they will be able to bear.

There are various avenues of investing one’s hard earned money - be it stocks, mutual funds, real estate, debt, or even in art.

Irrespective of the type of investment, one should try investing in the best option for them - as better (tax efficient) returns will lead to more wealth in the future.

Automating the investment process by a direct bank transfer to a mutual fund/ recurring deposit/ etc. will help in ensuring the savings objective is met and it also curtails the number of impulse spends - keeping you within budget.

Insurance is another area which is often neglected. This is very important, and ideally one should have a minimum of ten times their yearly income as the insured amount, i.e. if one’s annual income if Rs. 10 lakhs, one should have a minimum insurance cover of Rs. 1 Cr.

An important aspect of building wealth is tax planning. One should consult with a tax expert to see the best investment & savings avenues through which one can save on taxes.

While a certain tax outgo is essential, one can benefit from various schemes offered by the government to save on taxes, for example school tuition fees of children, medical expenses of dependent parents, interest on housing loan & loan for home renovation, etc. are tax deductible over and above the 80C limit of Rs. 1 lakh.

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