3 must-know money tips for young professionals

Larissa Fernand
www.fundsupermart.co.in

It’s not rocket science. Neither does it entail you living like a monk. Just follow these three tips and you are building a solid foundation.

Avoid credit card debt:

It’s time you stopped your intense love affair with your credit card or else you will rapidly be sucked into a black hole called the debt trap. It starts off as a convenience, more of a stop-gap arrangement. You pay just the bare minimum amount and walk scot free. But as you well know, or will soon learn, there is no free lunch.

Remember this. When you use your card, you pay for an item with money that is not yours. So basically you enjoy life on borrowed money. This instant gratification can put you on a slippery slope. If you have started revolving credit, which means that you could not afford to pay your monthly bill, then the only way out of this ditch is to stop using your card till your debt is cleared.

Let’s say you are revolving your debt at a rate of 2.75%/month. This works out to an obscene 33% pa which will rapidly eat into your disposable income and dramatically hinder your savings potential. And, it will not be just the debt that you are servicing. Every single purchase you make on that card will result in the interest rate being levied.

The way out:

• Once you start revolving debt, make it a priority to clear it
• Stop using your card for additional spending once you are in debt
• If you are struggling, talk to the bank and see if they are open to negotiating the interest rate

Get medically insured:

Numerous illnesses and accidents are pretty much age agnostic. So don’t live under the deluded notion that you do not need medical insurance. Should you need it and not have it, you will watch your savings rapidly disintegrate.

Granted, you may have a medical insurance provided by your employer. But what if you quit your job or get handed the pink slip and between jobs you fall ill or meet with an accident? What if you decide to become a consultant and the employers no longer provide medical insurance?

Get a medical cover. The younger you are, the lesser your premium so you won’t even feel the pinch. Not to mention the tax benefit. You can claim deduction from total income under Section 80D of the Income Tax Act, 1961, against premium paid towards the policy.

What’s good:

• Existing illnesses are excluded from the cover, so being young with no pre-existing ailments gives you a complete coverage
• When you are young you will not have to take a health check-up to qualify
• The more years go by without you making a claim, the greater your claim bonus

Start investing:

The longer you wait, the more you lose.

You have time on your side today, this benefit won’t last forever.

Let’s say you invest Rs 1 lakh to withdraw when you are 70. By delaying your investment by just a few years, you pay a heavy cost. Here’s how it will pan out.

If you don’t have any savings, start now.

All you need to do is cut down on your savings by just Rs 1,000/month and invest that amount in an equity mutual fund. Within the next 10 years, you would be patting yourself on the back.

Let's say you invest Rs 1,000/month in a systematic investment plan (SIP) for 10 years in an equity fund that returns 12% pa. By just increasing the SIP amount every year by a very affordable Rs 500, the end result is amazing. A teeny-weeny push from your side, will go a long way. Start now!

All investment calculations are on the assumption of an annual return of 12%.

The author is an Editor at Fundsupermart