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The first job and first salary give you a sense of accomplishment. But it can be difficult when you don’t know how to manage finances. Here are some financial planning tips to know how to get your finances in order.
Updated on: 6th August, 2023
Getting your first job is a huge milestone, and receiving the first salary gives you a sense of accomplishment. As a student, you live 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.
Managing your finances effectively is a crucial aspect of achieving financial stability and long-term success. Yet, it is something that many people struggle with. Whether it’s dealing with debt, saving for the future, or simply getting a better grip on spending habits, taking control of your finances can be a transformative experience. Read ahead to explore seven practical tips to help you get your finances in order and pave the way for a more secure financial future.
Almost 80% of single adults save less than 10% of their monthly earnings. Unfortunately, increasing expenses and higher living costs (especially in metros) leave 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.
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 a 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.
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, or 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.
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 even to buy life insurance. There are different types of life insurance available in the market. You can compare life insurance online and make an informed decision.
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.
The foundation of a strong financial plan starts with safeguarding against unexpected events through insurance policies and building an emergency fund. Insurance serves as a safety net in case of unforeseen circumstances, such as accidents, illnesses, or property damage. Common insurance policies include health insurance, life insurance, home insurance, and auto insurance.
Alongside insurance, an emergency fund is equally vital. This fund should ideally cover three to six months’ worth of living expenses. Having a dedicated emergency fund can help you tackle unexpected job loss, medical emergencies, or major car repairs without derailing your overall financial stability.
Debt can significantly hinder financial growth and stability. Prioritize paying off high-interest debts first, such as credit card balances and personal loans. Being debt-free allows you to allocate more money toward savings and investments, freeing you from the burden of ongoing interest payments. Create a debt repayment plan and stick to it diligently, considering options such as the debt snowball or debt avalanche methods to accelerate the process.
Regardless of your age, it is never too early or too late to start saving for retirement. The power of compounding allows your money to grow over time, making early investments more valuable in the long run. Take advantage of retirement savings accounts, and contribute regularly. Many employers offer matching contributions to retirement accounts, which are essentially free money to boost your savings. If you haven’t begun saving for retirement yet, start today and make it a consistent habit.
Housing costs are typically one of the most substantial expenses for individuals and families. Opting for lower housing costs can free up more of your income for saving, investing, and other essential expenses. Consider various options, such as renting a more affordable place or downsizing to a smaller home. If you’re a homeowner, refinancing your mortgage when interest rates are low can also lead to significant savings.
Additionally, exploring co-living arrangements or shared housing can be a viable option for reducing housing costs. While housing is essential for comfort and security, finding a balance between cost and quality is essential for overall financial well-being.
Taking control of your finances is a transformative journey that requires discipline, patience, and perseverance. By following these seven effective tips, you can create a stable financial future and work towards achieving your long-term goals. Remember, financial success doesn’t happen overnight, but with dedication and smart choices, you can build a solid financial foundation that will serve you well for years to come. Start today, and embrace the path to financial freedom!
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