21 Things To Know When You Get Your First Salary
When I see youngsters getting their first salaries, they splurge! After all, they have just got their financial freedom! But suddenly, all new purchases and extravaganza lead to chaos! First Salary just becomes a date! Then, they wish that someone told them how to plan and then spend their first salary wisely. If you are looking at the top practical ways, then this blog is for you. 21 Things to Know when you get your First Salary. Simple, Demystified. Secrets revealed!
I am attempting by me to bring all my best ideas on financial planning for those venturing out from their college into their first job. It came as a must write a blog when an old MBA classmates son invited me to speak at their college event. I started thinking that as a financial planner and investments advisor, I have come across so many of my clients who bring their young daughters and sons to me for giving them such advice. It made me think and write a unique blog especially for students who are just passing out of college.
This blog is for all such students who are now leaving their college and joining a new job. The day you enter your first job and you then anxiously wait for your first salary to come! Then that SMS which comes to your mobile saying-"Your Salary is credited", is the most joyful moment! And you want to go out and party. Sure, but why not understand some things before that great urge(s) to spend?
According to a global survey done by Standard & Poor, 76 % of all Indians do not understand financial concepts! Lower than the world average but near to BRICS nations.
What are the top ways to, therefore, have financial literacy for yourself and then plan your money, when you get your first salary?
Here are the top 21 ideas explored to help you:
- Strategies: Take a macro view of what your net salary is going to come into your bank account. What are the CTC and gross pay? Now, think and write down what all needs to be done with the money that is going to come to you in the next one year and next five years. How much can you save and how much you would necessarily need for your monthly expenses. Make an excel sheet with Income-Expenses detailing and then saving vs investing possible.
- Budget-Cash Flow: Now make cash flow for the next one year and five years. Map all your expected Income-expenses- Savings and then invest, after what is left. An excel extrapolated across five years can help you better, as there may be some monthly, some quarterly and some yearly commitments to take care of.
- Expense Tracker: This is the right time to invest in some proper paid application which can track all your income-expenses on a daily basis and give you a summary of where you re majorly spending your money.
- Goals for next five years: All that you have always wanted to buy in your last graduating years, make a list. Your wish list. Write down. Now prioritise all of them. Think and plan what all can be possible in the next five years, within your given resources.
- Financial Literacy for Self: Now that you are excited about those great things that you want to buy or spend on, why not educate yourself on basics of money and investing. Only 1 in 4 adults of India's most prosperous are financially literate! There no personal finance lessons or courses in any of your colleges or Universities! Strange that financial literacy is so low that only 14 % of Indian adults save at a formal institution! Teaching yourself goal based investing can save additional and ill-planned investments throughout your early earning life.
- Contingency Fund: Before you start investing anywhere, I suggest that you should calculate the total monthly budget and set aside about 3-6 months of regular monthly expenses. Keep it aside in a liquid mutual fund to earn some extra return than a saving account or better than a fixed deposit (FD). Some mutual fund which can also give you a debit card to shop or withdraw cash for those unforeseen circumstances. Plan for contingencies like dental, accident or bereavement in the family. Don't invest anywhere unless you have filled up this bucket.
- Insurance: There are many myths and hearsay which you will now hear about insurance. All your friends, relatives etc. will suddenly start showering you with extra care, to lure you into some (unattractive insurance policy).
- You need to plan and judge if you need any life insurance at this stage at all? Is there any loan or outstanding which needs to be protected or some dependent or some goal which is dependent on your income? Only then plan to buy a simple life Insurance policy called as term insurance.
- Now, you need to study and then buy health insurance for yourself and maybe your family also. Think and plan to buy an insurance indemnification policy from a reputed private health insurance company which would cover all illnesses or accident leading to hospitalisation with no deductions at all.
- It may be advisable also to buy sufficient accident insurance for yourself which should give you cash in case of temporary disability like a fracture or burns for your incapacitation number of weeks.
That's it. Don't buy any other insurance policy or investment-oriented policy now.
- Invest Long Term: Consider investing about 20 % of your net salary into long-term diversified equity mutual funds (understanding the risk involved and taxation, exit clause etc. before investing). Link it to a long-term goal of over ten years horizon like buying a house or your retirement planning.
- Financial Plan: To make your goal based investing, based on your risk profile and time horizon, a qualified professional like a CERTIFIED FINANCIAL PLANNER can be a great start. Pay a fee and get your finance route map and then invest as per this advice.
- Auto Transfer: If some money can automatically go out from your savings (incoming salary account) into some systematic investment plan (SIP), then you won't have the temptation to spend whatever comes in. Start saving from day one.
- Good credit score: If and when you would like to take a loan for buying a new home or a car and any such other necessity, then the banks would check your creditworthiness. This is available on sites like www.cibil.com which keep records of all your loans and any pending s there still unpaid by you. So, keep checking your credit score once in a year and never leave any old debts awaiting, however small.
- File your income tax return: Even if your taxable income falls below the taxable limits, file your income return every year on time. This shall also come handy when you may need a loan or when you are starting your venture.
- Need Vs Want: You may "need" to buy an iPhone, but you want to plan on buying your own house! Think, which is more important? Then, prepare ahead your money flow.
- Dues: During your college days, you may have taken that canteen loan or taken some money from an old friend or not repaid your relative. Well, now is the excellent time to pay them back. Preferably with a thank-you note or a gift! Sit back and do a round of all old debts. Clear out any old outstanding like mobile bill or credit card or any such due, whatsoever. After all, there is nothing like debt free worry free life.
- Home: Home, your first home, should always be the top priority. Take loan immediately to buy your house, if you don't have your own house. Or if, you are living on rent. Or if you are not living with your parents. But plan only for one home, for self-use, for self-occupancy and plan accordingly.
- Keep Fit: your busy days are about to start! You may be having a sitting job. Or late nights work schedule. Therefore, it is important to buy some gym membership that can keep you fit and healthy.
- Trip: You always saw your friends and relatives go off to exotic locations! You always wanted to go there also! Now, is the time to think and plan all such trips. Don't let anything keep you away from going on such trips. Whether solo or in a group, go and explore India, and then the world. Tell your mind that, you can afford the best of hotels and best of airlines.
- Buy: That branded bag! The iPhone X. You did that window shopping and said to yourself-"one day, I shall return and buy this...". Well, that day has come. Let your mind know that you are made to spend on things which may be expensive, but you can afford them now. Never demean your earnings and keep high goals. To buy the most expensive things that you can buy. Make a list and plan.
- Pamper Yourself: A little indulgence can be worth it! You had forgotten to pamper yourself when passing out and giving job interviews. Those lazy relaxing days when you would just relax. Maybe visit a good spa or get an excellent facial done. Your body deserves it.
- Help Someone: You are now on your path to financial freedom. You are currently self-dependent. You have an income and perhaps pay taxes. But there are so many people around you who are little less fortunate than you. Consider helping out students of your college in some form. Take up a noble cause. Give out old clothes and utensils to old-age-home. Spend time with abandoned elderly or sick people.They will surely bless you.
- Thank your Parent: They spent the midnight oil to bring all the comforts to you. They cared and worked hard to bring all the necessities of life to you. Perhaps, they didn't spend on themselves just to ensure you are happy always. While no amount of money can repay parents efforts, but small gestured would go a long way to bring them joy and happiness. Caring and bringing them small gifts could bring a smile on their faces. Take them out to the fancy dinner or buy them that special clothes that they couldn't afford. Give them your first salary and let them keep it. You will also get blessings.
With these 21 points to remember when you get your first salary, you are now on a well-planned financially remarkable journey. A journey of thousand miles begins with small steps.
Planning your finances, personal money with a financial planner could save you big hassles later. Investing with the guidance of a qualified and professional investment advisor (like a registered investment advisor) could streamline your investments and bring you desired results. Keep reviewing your investment portfolio regularly. Keep tracking all your finances.
Make your WILL so that all your newly started investments and assets go to your desired beneficiaries, should anything happen to you.
Not only does a financial planner give you the necessary ideas to pan all your finances in the right direction. He becomes your mentor who can be consulted like a trusted friend.
Your investment advisor can be your one-stop source of having all your investments in one place. He can be looking after your interests while you may get busy in your work. He can monitor and control your investments as per instructions laid out in the financial plan.
Adding more money to the journey of predefined goals would make you happy and satisfied also. It may bring your thoughts in sync with what you feel and then act.
Coherence and harmony between your mind and heart on money matters shall bring you that peace and joy, that would make you celebrate more.
The journey has just begun.