Are you on your way to getting a job with a start-up? While the prospect of working in a high-growth environment excites you, its important to evaluate your compensation, too. For instance, are you signing up for too low a pay-in-hand in exchange for a significant component in the form of ESOPs.
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Beyond that, once you bag the job, given the many hire and fire instances in the startup world, it makes sense to have some financial planning in place.
How much should you save and what should your emergency corpus be like? What about life and health insurance? And finally, if you do make a windfall gain on your ESOPs, what to do with that money?
Moneycontrol spoke to Santosh Joseph, CEO and Founder, Germinate Investor Services (Germinate) on personal finance matters to handle if you are taking up a start-up job. Germinate is a Bangalore-based mutual fund distributor.
Here are a few important points that he highlighted:
-When taking up the job offer, do not give up a large part of your fixed salary for a large variable part of the ESOP (employee stock ownership plan) at the start-up. You will need a certain amount of money to meet your monthly household expenses.
-Both your salary and ESOPs will depend on the one company that you will be working for. So, choose a fine balance between the two as you want to participate in your company’s upside but at the same time, also be able to manage your day-to-day expenses.
-Emergency corpus – set aside money that covers 6 to 12 months of your expenses to give yourself some financial security.
-How much to save – this varies from person to person. But the more you can set aside, the better. One, that means you are spending less and two, that means you are giving yourself a margin of safety. Even saving as much as 20-30 percent for the first 10-12 months can help with this.
-Be conservative on ESOPs – factor them as part of your equity portfolio only after you have been able to encash at least some part of them. That’s because, ESOPs can work really well for you but they can also completely fail so be a bit conservative.
-Don’t treat a start-up job as a ticket to quick money or early retirement. Continue to follow your budgetary controls as you did when you had a regular salaried job.
-Insurance – life and health insurance are mandatory for everyone, whether in a start-up or not. Don’t depend solely on the employer provided insurance cover because when you quit a job, the new employer may not offer the same benefits. Get insurance covers on your own.
-Life insurance - When it comes to life insurance, it makes sense to go for regular pay term plans (and not one-time or limited pay term plans) given the time value of money. Also, you can manage your cash flows better this way.
-Health insurance – get a health cover as early as possible which is when you are likely to be healthier. This helps you save on costs as the premiums are lower. Also, overtime, you are able to get benefits such as no claim bonuses and make better use of your policy than if you take it much later (only when you are shifting jobs). Consider paying for a health policy upfront (for up to 3 years) as that can turn out to be far more economical.
-Windfall gains from ESOPs – a human approach to dealing with this would be to use a small part of it to splurge on yourself and your family and then carefully investing the rest of it.
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