First Job? Here’s Some Tips on How to Manage Finances

• 9th Oct 2019
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Getting your first job is a huge milestone and receiving the first salary gives you a sense of accomplishment. As a student, you lived with limited money but once you start earning, there are so many things you would like to do.

Most people spend their lives chasing dreams rather than realizing them. However, proper financial planning helps you to achieve your dreams. Adopting prudent financial planning at the start of your career ensures you can accumulate a huge corpus through compounding.

There are various ways through which you can plan your finances like opening a recurring account, investing in life insurance etc.

Five tips on how to get your finances in order:

1. Start budgeting

Almost 80% of single adults save less than 10% of their monthly earnings. Unfortunately, increasing expenses and higher living costs (especially in metros) leaves very little for you to save. One way to overcome this limitation is to start budgeting. First, allocate the amount needed for necessities such as groceries, rent, and utility bills. It is recommended to follow the 50/30/20 rule. As per this rule, 50% of post-tax income should be used towards urgent requirements, 30% on wants, and the balance as savings.

2. Build up your savings

At the start of your career, you may likely stay with your parents and avoid paying rent and utility bills. These savings may be used to build up for emergencies. If you have any student loan, it is important to repay it at the earliest.

It is also recommended to open a recurring deposit account that is used to deposit 10%-20% of your monthly income. This helps in developing financial discipline and ensures that you build a larger corpus over the long-term.

3. Understand your financial goals

A common financial planning tip you will read about is to list down all your goals. The next step is to prioritize the important goals and then create a plan to achieve these. You may classify your goals as short-term,medium-term, and long-term.

Short-term goals may be something you want to achieve at the end of the month. Medium-term goals require planning for one or two years. Long-term goals are achieved over five years or longer; these require detailed planning. Once you understand your goals, determine the amount you need to save and choose investment plans that help you achieve these.

4. Make the right investments

An important aspect of financial planning for beginners is to choose the right investment avenues. Begin by understanding the different types of investment options that are available. Some of these include stock markets, fixed deposits, mutual funds, bonds, and insurance.

Insurance is often neglected especially by young adults. However, it is recommended you have ten times your annual income as coverage. A life insurance policy ensures your loved ones do not face financial difficulties in case of an unfortunate event. And it is very simple to even buy life insurance. There are different types of life insurances available in the market. You can compare life insurance online and make an informed decision.

Invest in Term Life Insurance and secure your Loved Ones

5. Plan for your retirement

Though retirement may seem a long distance away when you start your career, planning for these years is also important. The first step is to calculate the corpus you would need to sustain your lifestyle post-retirement. Next is to invest in different avenues and build the corpus. When you start early, you will need to save a smaller amount to achieve your goal. Moreover, it provides you with a long time to enjoy the power of compounding.

Budgeting, prioritizing financial goals and investing from your first job ensure you do not have to worry about how to manage finances later in life.

- A Consumer Education Initiative series by Kotak Life