Recently, the Indian School of Business (ISB) concluded its placements and the students are set to join the workforce in May-June. Similarly, other business schools like Indian Institutes of Management (IIMs) are set to complete their campus placement process by March this year.
If you are one of those who have just got your first job offer, you may be out with your friends celebrating. And why not! It is your first job and soon you will be getting your first pay cheque. With the first pay cheque also comes the task of managing your money. You may have all the valuable skills to excel in your first full-time job. However, along with that you also need to have the ability to manage the money you earn. Here is how you can gear-up to manage the money you earn.
If you have taken an education loan, it also means that your time to repay the loan begins immediately. Start your repayment process immediately. "You don't have to pay off the loan upfront. You can start with paying your regular equated monthly instalments (EMI) since there is a tax benefit attached to your education loan," said Dilshad Billimoria, director, Dilzer Consultants. If you took any debt to buy a smartphone or laptop, you need to pay all those debts too as soon as you start working. Education loan is likely to be just the first major debt of your life. As you move into different stages of your life, you will keep adding debt in the form of home loan or car loan. Any financial institution will look at your previous records of repaying your debt before giving you more loans. Hence, make sure you are regular with servicing your debt. You don't want a bad credit score-which shows your credit history and repayment ability-to affect your future loan processes.
Cash flow is basically a snapshot of all your expenses and income. You know your salary income hits your account every month. What you need to keep a tab on is your expenses. How should you do it? "As you are starting off, you may not get the complete picture in the first month itself. You will be able to get a trend of your expense in 6 months. To get a snapshot of your expenses, you can start tracking them from the first month itself," said Billimoria. Many people can't give an absolute number to their expenses. For a strong financial plan, cash-flow management is the key ingredient. If you have a clean cash flow, you will be able to dive into more complex money decisions with ease. The process is simple-get a ballpark amount for your expenses, such as your education loan EMI, rent, food and other bills. You can jot down the expenses in a spreadsheet or any of the expense-management app that are out there.
You must save from your monthly income. This habit will go a long way in the years to come. "On getting the first job, usually the approach is to party first or buy expensive gadgets and keep financial planning for next month. And next month never comes. However, if you understand the power of compounding, you will know that it is better to start from day one. Hence, always keep a part of your income aside for your future. The first 4-5 years of your work life is very important for your savings," said Vivek Damani, founder, Jeevan Prabandhan, a Mumbai-based financial advisory company. You can start saving small amounts in the beginning. For instance, Rs 2,000 per month is easy to do. If you step out of the house for a meal and drink in a restaurant in Mumbai, you will end up spending nothing less than Rs1,000. You can look at it as a cost of two meals a month. More than the amount, developing the habit of saving regularly is important. Once you get used to saving regularly, you can just keep increasing the amount. Financial planners say, ideally you need to save at least 10% of your monthly income.
As a salaried individual, every year you have to pay your taxes and file your returns. This is the right time to understand taxes. First, read your salary structure to know your tax liability. If you have only one income, it is much easier to tackle. "When we talk about salary, most people don't factor tax in the CTC (cost-to-company). Even people who have been working for a long time, will usually calculate it based on the gross amount. Taxation is something that needs to be addressed regularly. You need to understand your post-tax income," said Damani. You also need to understand the kind of tax benefits you can get. The tendency is to defer things that you don't like, such as taxation, said Damani. "Learning about taxation has to be imposed," said Damani.
Once you have started saving, you don't want the money to be lying idle. You need to start putting your money in the right investment products. You also need to keep money aside as a contingency fund and then start investing. "If you are earning Rs 50,000 a month and say you save Rs 10,000. Earmark say Rs 3,000 for a contingency fund. You can put this money in say a recurring deposit," said Damani. Alternatively, you can also look at debt funds. Next, as part of your investments, you can start putting small amount as systematic investment plans (SIPs) in mutual funds. "You can also start investing in tax planning products such as equity-linked savings schemes (ELSS) and Public Provident Funds. This will not only take care of your tax planning in the initial years but also in investments," said Billimoria. There are many platforms currently available, online and mobile apps, where you can start investing immediately.
As you start your savings and investment process, you will realise that there are multiple financial instruments that you can use for your money management and financial goals. Hence, it is important to update yourself regularly on money management. While you continue to grow in your career, your money should also be nurtured so that you can fulfil your financial needs in future.
In arrangement with HT Syndication | MINT
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