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10 tips to help you better manage your finances early in career

Starting your investment journey early helps in instilling financial discipline.

November 16, 2017 / 10:56 AM IST

Your early career years could be one of your most exciting ones. Your late 20s or early 30s is the phase of life when you want to enjoy spending the money you earn. But amid the fun and entertainment, you should not forget the need to save and invest to create a corpus for later life.

Admittedly, it is tough to manage money prudently early in your working life. Here are 10 important financial advice that will help you to in handling your money better:

 Set financial goals

As soon as you start earning, you should plan your financial goals, especially retirement planning, which can be a long-term financial goal and require a lesser amount for you to make investments. There are several other goals like wealth creation, education planning, wedding planning, car purchase, house purchase, overseas vacation, etc.

Start investing early

Starting investments early not only helps in instilling financial discipline, it also allows more time for your investments to benefit from the power of compounding. This is especially true for big-ticket financial goals like creating your retirement corpus where starting early will allow you to accumulate your retirement corpus with much smaller contributions.

“First identify your financial goals and then calculate their required monthly contributions by taking the help of online SIP calculators. Invest in short-term debt funds for financial goals maturing within 3 years, hybrid funds for goals maturing within 3–5 years and equity funds for goals maturing after 5 years, said Binani.

Santosh Agarwal- Head of Life Insurance, says ULIPs can be a good investment option. “ULIPs can turn out to be a perfect concept for long-term financial goals. The new age low-cost ULIPs are best suited for higher returns and if invested at an early age can build a decent corpus for later years’ requirements. The return of equity-linked ULIPs ranges between 12-15%, if invested for 10-15 years, Agarwal said.

Build your credit score

You need to build a credit score so that you can access loans at a future date. “For those lacking credit history, the most cost-effective way to build one is to use a credit card for daily expenses and ensure full bill payment by the due date. Credit card transactions are reported to the credit bureaus, who then use them to calculate your credit score. People who are denied credit cards due to various eligibility criteria may opt for secured credit cards to build their credit history,” told Radhika Binani, Chief Product Officer, told Moneycontrol. If you have an education loan, ensure you pay your complete EMIs on time to build a healthy credit score.

Use your credit card wisely

Apart from providing instant credit and building a credit history, credit cards can also help in saving money. Ensure disciplined spending through your credit card where you are able to pay the full outstanding amount by the due date, without disrupting your finances.

Binani advises choosing a credit card that suits your lifestyle expenses and offers maximum benefits in terms of discounts, cash backs and reward points on your major expenditure heads. Make sure to redeem those reward points before their expiry. “Avoid ATM withdrawals through your credit card. Request your credit card issuer to increase your credit limit or apply for additional cards if your credit utilisation ratio frequently exceeds the 30-40% level,” she said.

 Get a life insurance policy

Term Insurance should be a must-have product in the financial plan. It is a pure protection product for a person with dependents. The main objective of a term plan is to provide financial protection to the family, in case of any unfortunate event. If you plan to buy a term plan at an early age, it will be quite economical and the premium would remain same throughout the policy term. “Nowadays, there are several options available by the insurance companies to get higher policy term or term insurance protection with lifelong cover,” Agarwal said.

Keep check on spending

Harsh Gahlaut, CEO, FinEdge said that although having fun in your 20s should definitely be a top priority, a certain degree of fiscal prudence is essential too. The key is to strike a balance between the two. Excessive socialising can end up draining your finances – or even worse, put you on the never-ending hamster-wheel of credit card debt. “Also, you may be surprised to know how much wealth you can create by diverting the savings made by reducing a couple of nights out a month, to a long-term SIP in an equity mutual fund,” he said.

Create an emergency fund

Always maintain a certain amount of money in your bank account so that in case of emergency need like job loss, you have sufficient money to carry out your livelihood easily for few months. You should always keep 3-6 months of savings in your bank account which equals to the minimum expenses you make on monthly basis. For example, if your monthly expenses is Rs 30,000, you should keep at least Rs 90,000 in your bank to meet the contingency requirement, if occurred, any, in future.

Hold off buying depreciating asset

The early 20’s tends to be quite volatile for most people in terms of career stability. This is typically the age when a person embarks on a journey of self-discovery, in order to build an awareness of where their long-term career fitment lies. “Frequent job or even industry changes, and voluntary salary cuts are not uncommon. Acquiring an expensive depreciating asset during this tumultuous life stage could end up proving costly to finance during lean periods or transition phases. It’s best to postpone the purchase of an expensive vehicle to a time when one is more settled in their career,” said Gahlaut.

Do not buy home too early

Unless it is bought cash-down, which is extremely rare, a home can be a very expensive asset to acquire. Taking on a home loan too early on can result in a degree of financial leverage that can hurt you, and even impede your progress towards other financial goals.

Gahlaut said that situations such as the loss of a job, or the transitioning to entrepreneurship, can end up putting severe pressure on your finances and if you’re unlucky, even lead to a fire sale of your acquired asset. “Notably, having a high degree of financial leverage early on in your career can actually end up impacting your career decisions too, as you’ll be less willing to take risks - and may end up passing up lucrative opportunities that may temporarily unsettle you,” he added.

Work hard to achieve success

Unless you work hard, you will not get success. A days’ progress adds to big result, therefore, to fulfil all your desire needs, you must dedicate yourself towards your passion. Also, you must take advice from financial advisers from time to time.

Navneet Dubey
Tags: #Planning
first published: Nov 16, 2017 10:56 am