Be it in a multinational, small business, or any company for that matter, first job and first salary hold a special place for all of us in our life. Can one ever forget the special moment when they received their first salary? It’s an emotional link that stays with you forever.
Now, what do we do with our salary? Some celebrate with friends at a party while some buy gifts for their loved ones. However, what you need to clearly remember is that you can multiply your first salary by simply making a strong investment plan for it.
‘Investment planning from your first salary’, sounds unrealistic and not practical. As surreal as it may sound at the first instance to you, it is not beyond you as well, which is the key thing to remember. Who’s stopping you from using your first salary for partying or buying gifts. Just ensure that while you plan to party with friends with your first salary, you will also use it to build a strong foundation for a secure financial future for you and all your loved ones. Yes! Your first salary can become the stepping stone for your successful financial future.
Let’s see how you can start financial planning with your first salary itself:
Do not deviate from the ‘70:30’ rule
Yes, you need to make the moment you get your first salary special by partying with your friends. However, there’s no harm in you keeping 30% of your first salary aside first. Use that towards securing your financial future by starting a mutual fund SIP investment. Now, the remaining 70% is available to you for having a blast with your friends for those memoir moments. This is crucial to follow because right from your first salary itself, you will get into a habit of ensuring your expenses do not exceed 70% of the salary, which will get you into a savings habit.
Start clearing your education loan
In case you have taken an educational loan, then use your first salary to start making the repayment. That said, in case the loan amount is big, reduce the amount you allocated to SIP from 30% to something more appropriate to accommodate your education loan as well.
Apart from the tax benefit you get under section 80E, education loan repayment gets you working towards becoming debt-free at a really young age. With debt, the more you delay, the more it hurts your future savings and investment plan. This becomes even more important when you get married and have a family.
Don’t lose control over your expenses
Partying and enjoying life while ensuring that you are investing for a secure future can coexist. It is imperative for you to watch your monthly expenses closely. That bit more you save in your expenses can come in really handy during rainy days. Watching you expenses and getting into good spending habits now is crucial since very soon you will be entering the married couple zone.
Rest assured, things will change from there on. In fact, after 10-15 years of tracking down your expenses and following a strict culture, you will find out for sure how all those unwanted expenses you got rid of helped you in building a strong investment base.
Get inquisitive about investment schemes and offers
You are a young Internet-savvy salaried person. Thus, why do you need an invitation to search the Internet for best-in-class investment schemes. These could include mutual fund SIPs, fixed income plans, corporate fixed deposit schemes, Initial Public Offerings, Offer For Sale, and other equity and debt asset classes.
It is very crucial for you to plan a well-balanced portfolio, which is based on your overall risk appetite. Please note that you are in your 30s now, which gives you another 35 years for saving up for your retirement. Therefore, a delay of even 5 years in your investment planning could mean a big loss of compounding benefit for that period. In fact, according to experts, you may have to invest almost double of what you would now from that point to achieve the same amount that you wanted if you started now.
Understand the significance of having an insurance cover
Planning insurance when you are young is crucial and highly beneficial since you’ll pay a lower insurance premium. Thus, consider using your first salary in this regard. Getting an insurance cover at a young age will help ensure you have an adequate cover when you retire. Thus, plan your health and life insurance cover now. Given the lifestyle-related health problems that today’s youth are exposed to, you would want to ensure that you don’t get caught up at the wrong end. Moreover, you can get income tax benefits under sec 80D for insurance investment, so why miss it.
Think about retirement plans
You might say that you have just got your first salary so why plan the retirement now. The answer to that is your age, which allows to enjoy higher risk propensity. Thus, equity markets can be a very useful way for you to take advantage of the benefit of compounding over time. Thus, look at retirement plans such as the National Pension Scheme (NPS) to secure your future.
If you find doing all this on your own difficult, seek expert guidance from investment professionals. To know more about financial planning at a young age, write us at [email protected]
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.