Landing your first job is a dream for everyone. Throughout the campus life, you were eyeing on the financial independence you would achieve from a job. A regular job doesn’t just simply generate an income, it also determines the way you want to spend your money. You buy the things which were a dream earlier, travel to places we wanted to visit and of course, please your loved ones with gifts.
While all this brings pleasure to your soul, the young generation always tends to ignore the idea of having a financial plan. Your parents keep on insisting that you spend wisely, cut down your unnecessary expenses or put your money in a nice and safe investment for rainy days. No matter how much you dislike their concerns, they are actually very right and are only saying this from experience. Every generation has a unique lifestyle that drives their spending and managing habits. Your parent’s generation lived by the “save first, then spend” code. But you are the YOLO (You Only Live Once) generation. You live in the fast lane and rather than creating a budget, you live from paycheck to paycheck to fulfill your dreams.
But dreams these days, become a reality only after paying a high sum. A car for ₹5 lakh, an exotic vacation for ₹2 lakh or an iPhone for ₹1 lakh. If you keep on spending so much on your dreams without having a proper financial plan, you’ll probably end up in a very scary place with no savings left for those rainy days your parents used to mention.
No! Don’t be scared. This story is not to put you in pressure. If you’re an early jobber like me, it’s crucial for you to understand how you can strengthen your finances each financial year. With the start of a new decade, it’s a good time for you to make your financial resolutions. So here are some basic tips for you which will help make your dreams a reality and your parents proud.
1.) Make a Budget and Start Planning
Budgeting is the process of creating a plan to spend your money. It is simply balancing your expenses with your income. Creating a well formulated plan helps you determine in advance whether you will have enough money to sustain yourself throughout the month after all your expenses or whether you need to postpone a few unimportant expenses for the next few months. Just note down your monthly spending anywhere you can readily access like an Excel sheet, simple diary, or a mobile app. The objective is to identify your various spendings. After making a budget you’ll be able to identify your expenses into three main categories; essential, discretional and pleasure. Once you have identified these, take out a certain amount of your salary and put it away at a safe place. If you’re unsure about where to keep your money, it is always suggested that you start with a bank. Opt for a sweep-in account that has a fixed deposit linked to it. This will help you get an interest rate of 4% or higher.
2.) Identify your financial goals
Once you have started saving, it becomes very important to identify why are you saving or what purpose your savings will serve you. Start with small goals. For e.g: If you want to buy a phone, don’t put your money into it immediately, wait for your savings to cross the price tag of the phone so that even after using up your savings, you’re left with a reasonable amount in hand. Spending immediately will ruin your monthly budget and jeopardize your savings. It is very effective if you take loans for your bigger expenses like owning a car or bike. This way your EMIs (Equated Monthly Installments) will be mixed with your expenses creating a balance between your spending and savings. Your budget will help you identify how much amount you can commit to paying the EMIs.
3.) Adapt to digital payments mode
After the demonetization of old currency notes in 2016, the Government of India’s key focus was to promote the use of Non-Cash payment systems. These payment systems include NEFT (National Electronic Funds Transfer), UPI (Unified Payments Interface), Net Banking, Debit and Credit Cards. It is advised for young jobbers to get themselves educated about these instruments and their usage. These will not just help you maintain a record of your transactions but you will also be rewarded for using these platforms either by the bank or by the service provider. Few e-commerce and food-chains even offer deep discounts if you use non-cash payment mode for your transaction. Although there are many myths about having a credit card, it is actually one of the most advised modes of payment. Having a credit card from the start of your career and paying your bills timely helps young jobbers build a credit score which later helps them in taking loans. Credit cards also have a reward point scheme, where you are rewarded with certain points for spending. These points can later be availed for booking movie tickets, pay for food, bills, etc.
4.) Get a Health Insurance
With health-care costs rising every year, it is very important for young people to have health insurance. If you’re uninsured, any medical emergency will cost you a lot more than if you’re insured. Also if you buy health insurance when you’re young, fit and healthy, you will get a health cover against all future ailments easily with no cappings or co-payments. Health insurance has a waiting period for certain illnesses treatments which usually ranges from a few months to sometimes, a few years. While you’re young, you’re protected from having any of those elderly illnesses, therefore your waiting period will be over by the time you make an insurance claim. Also, having medical insurance also saves you taxes. In this constant work pressure and hectic work schedule, the chances of having a health issue have increased significantly.
5.) Buy a Life Insurance Plan
While most of the young individuals discard the idea of having a life insurance plan because they don’t have many financial responsibilities or any dependents, this is not necessarily correct on their part. There are plenty of advantages associated with having a life insurance plan. Having a life insurance plan at an early age will cost you less and the premium will remain the same even if you get old. If you buy term insurance at the age of 20 with a cover of ₹1 crore, your premium will be around ₹7k to ₹10k per year, but the same insurance will attract a premium of ₹25k per year if you buy it at the age of 35. Also, having life insurance helps you save taxes.
Other than these above-mentioned tips, it is highly suggested that you also get yourself financially literate. Financial literacy is the education and understanding of various financial areas including topics related to managing personal finance, money and investing. It includes the knowledge of making appropriate decisions about personal finance such as investing, insurance, real estate, paying for college, budgeting, retirement and tax planning.
This subject was not taught to us in our schools are and suddenly when we are grown-ups we were expected to learn and manage our finances on our own. Being financially literate helps you identify whether your purchases are an asset or a liability. It also helps you in understanding the market and analyzing your investments. It can also help you save commission fees that you might have to pay to the professional investment advisers.
Post authored by a fresher at a workplace who has realized early in life that managing ones finances better is as important as landing a job and keeping the job.
Sandeep is a journalism and mass communication graduate with a keen interest in politics and business. He is a part of Research & Content team at HrNxt.com.