How to make the most out of your salary in the initial years of employment
Today’s generation should develop a habit of doing digital transactions so that they can easily maintain the record of their expenses on monthly basis.
The journey from being a student to becoming an employee is an awesome turn around in one’s life. The first job brings about a sense of freedom. The financial freedom that it gives can help you fulfill many of those dreams, both big and small, that you have nurtured for long. For example, there is hardly anyone who doesn’t dream of travelling—maybe across the globe or just across the state. However, it usually remains a distant dream, primarily due to lack of funds. Once you start working and are in control of your finances, it is no longer impossible to make it happen.
However, planning and discipline are essential to make them come true. Here are five important aspects for one to look at:
Education loan repayment
Take education loan only when one can assure themselves of paying it back at the right time. However, it helps you to get tax benefit under section 80E of Income Tax Act.
Gaurav Aggarwal – Associate Director, Unsecured Loans, Paisabazaar.com said that although education loan repayment starts after EMI holiday period (moratorium period), that is one year after the completion of the course, making regular EMI payments or at least servicing interest during the EMI holiday period would reduce your interest cost in two ways.
“First, as interest calculation starts right after the loan disbursal and the accrued interest is added to your principal amount, making repayments right after the loan disbursal would reduce your outstanding loan amount and hence, interest cost. Second, some banks also allow 1–2% interest rate concession on servicing interest during the moratorium period. Apart from this, education loan borrowers should also ensure regular repayments after the end of the EMI holiday period as not doing so would reduce your credit score and future loan eligibility,” he said.
Track your expenses
In most cases, you earn more than the pocket money you used to get from your parents. When you start getting a salary make sure that you do not increase your expenses substantially just because you are getting more money and you are financially independent. You should develop a habit of doing digital transactions so that they can easily maintain the record of their expenses on monthly basis. This way they can manage their expenses watching the monthly expense trend line.
“Take all your utility expenses and debt into account to understand how much you can set aside per month. These expenses include your education loans if any, your house rent, utility bills, and other essential expenses such as food. Once you have an estimate of how much you can save, the next step is to plan how much to invest and where. Depending on the duration, you can choose from a variety of options from recurring deposits to FDs, to liquid funds,” said Ajit Narasimhan – Category Head – Savings & Investments, BankBazaar.com.
Once you do your research and decide on your investment plan, start saving. After meeting all your expenses including household expenses, liability expenses, and other discretionary expenses, you should develop a habit of savings. This savings can be done in bank accounts or in any liquid fund where you can easily take out cash whenever you are in need. This small saving acts as an emergency fund which can be very helpful for you in the time of urgent necessity. One should at least maintain 3 to 6 month of their expenses as an emergency fund in their bank account.
“You can set money aside every week or month or at any frequency that works for you. Do not attempt to save more than what you can. This will cause you to be irregular and eventually, you will end up with a much smaller corpus. The key is to be regular and consistent. If you stick to your plan, your dream holiday would be much closer than what you ever imagined,” said Narasimhan.
Plan a financial goal
To gain confidence in achieving financial goals, start with a small one for say, one desires to purchase a good bike or a small car, someone else may want to plan for an overseas vacation.
“The first step to do this is to figure out how much funds you would need and by when. This will give you an idea of how much you need to save to reach your goal. But, first of all, remember to save up an emergency fund before any other financial goal,” said Narasimhan.
Buy insuranceInsurance to financially protect your family is a must when you have dependents. However, buying insurance at an early stage will lower your premium amount for the same cover compared to what you would pay a couple of years later. One should ideally go for a term life insurance cover, which is a pure protection cover so that you get high protection cover for your family by paying the least amount yearly or semiannually, whatever suits you the best to make payment. Also, you may get cheaper rates buying insurance online.