4 March 2023
Highlight: Become financially independent by managing your first salary! Learn healthy saving habits and stock your nest egg.
Getting your first salary can be almost an intoxicating feeling. All you’d want to do is to splurge and spend on things you have wanted to—with your own hard-earned money. Once the euphoria starts to wear off, you get back to thinking about your future and save. To be financially secure must be your top priority. The sooner you begin saving and investing your money, the greater the returns – with increasing age comes greater responsibilities.
So, if you’re a newbie to the workforce, I know what you’re thinking – that you’re so broke right now, you’re just trying to get by. We feel you. But we’re here to tell you that many of the seemingly small money decisions you make today can have a big difference in your long-term financial future. Here are five ways on how to put your first salary to work and make the most.
The primary purpose of insurance is to cover risks in your life, not offer returns. Most people mistake it with investment because of the products in the market that furnish both. The earlier you get it, the better. Over the years, medical costs have been rising, and a health insurance cover is a must-have now. If you have no pre-existing diseases and are young, you pay a lower premium. If you have financial dependents, get yourself a life insurance policy. It offers you a comprehensive cover for a small premium with no returns but is eligible for tax reductions.
On the other hand, health insurance premiums are also eligible for a tax deduction. The broader catalog includes a basic indemnity plan, covering hospitalisation expenses for an individual, along with the family floater plan for your entire family.
While you are growing your savings, you should concurrently look at the debt you have accumulated and repay.
You might have some being heftier than others, like credit card debts. It’s a simple formula: start with credit cards, then move on to student loans.
Card debts tend to incur a 42 percent interest rate p.a (a much higher rate), which are unsustainable if allowed to snowball.
Calculate repayments for all your debt and set aside this money on a monthly basis to ensure you do not default on payments and suffer additional interest charges. Securing free cash is the only thing more important than paying off all your debt. Pay off these debts first, as they have the potential to cause you financial ruin. Use your excess savings by opting for making partial or complete repayment of your high-interest-bearing loans.
Student loans are also typical debt everywhere. Payment for such loans usually starts as you graduate and may take quite a few years to clear.
During the early years, you get used to the good feeling of earning your own money and spending as you like. It might result in a tendency to revolve your credit card dues or delay payments without thinking through the consequences. Avoid maxing out your credit cards and learn to live within your means. These can affect your credit/CIBIL scores and hamper your ability to take out a loan when you’d require it. Try and steer clear of revolving credit or using the EMI option/cash withdrawal wherever possible.
At Fibe, we look beyond just CIBIL scores to assess your creditworthiness.
I know it’s very dull to think of buying an insurance plan for you amid you having many programs ready in the store. But buying insurance is of massive importance for youngsters at this stage of your life because the earlier the better. So, get your health insurance today because you never know when a medical emergency may come knocking at your doorstep. By investing early, you also let your financings have more time to ride the ups and downs of financial markets, which can be labile.
Always take a diversified approach to reduce risk when investing—dividing your investment money into different asset classes – that are not correlated, where price movements in one investment do not affect another, where price movements in one investment generally move in the opposite direction.
This helps if one asset does not do well, as other assets within your portfolio might be able to help cover the loss.
And it should not only be confined to health insurance but buying life insurance is of utmost importance.
Are you caught in the thrill of making money, buying things, or saving for bigger goals like a house and a car?
So, build an emergency corpus – that is what you’d want to do first thing, way before saving for smaller, short-term goals. This should be equal to 3-6 months of your household expenses and include any loan repayments and insurance premium obligations. The amount should be easily accessible at the time of need and not subject to market fluctuations.
You could opt for a short-term debt fund, liquid fund, or a sweep-in bank account for easy availability and a higher rate of interest for your money.
Maybe, at the moment, you are enjoying most of the time without having any systematic plan. But if you get yourself to follow even one of the things mentioned above, you will enjoy it throughout your life. Enjoy now or make your entire life enjoyable – the choice is yours to make.
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