| You need a plan to build a house. To build a life, it is even more important to have a plan or goal – Zig Zaglar |
Anything first in life, has always been special. Similarly first job is also a major milestone and an unforgettable one. No matter what the job is, every body will go through the same excitement mode on the first day of the job. Life after college days, corporate work culture, working with team, trainings. Wow! the last day of the month (salary day). But unfortunately, Employers do not teach new recruits on how to manage finance rather to any of its employees. Few people let others take care of their earning; few do it by them self and few do not worry at all. This article helps those people who are starting their carrier to concentrate on financial life as well. Let us see what are the first things to do financially along with your exciting journey of first job.
1. Understand your Income:
In other way, understand your CTC (cost to the company). Understanding the source of Income is very important not to see whether your HR or finance team is working fine but to plan your current and future life. Most of the people are just satisfied that salary is credited to their account end of the day; they do not bother to see payslip also. One can plan his finance only when he understands his salary, associated components, variable pay, bonus, deductions and tax.
2. Personal Budget
Once you are clear with your monthly income, next is to track it. Budget is not just for countries or companies, it is applicable to individual family also. In school, we evaluate the performance of a student based on his marks and over years it will depict his growth. While selecting mutual funds, we look for 5 years returns and compare it with peers, Similarly tracking your monthly expenditure over a period of months helps you understand your monthly outgo, where you are spending more, which price is increasing and where to cut down. Moreover this bring a discipline in your self.
3. Establishing your goals
Before you can start saving or investing for the future, you need to work out what your aims are. Only if you know what you are saving and investing for can you choose the best products to help you realize your goals. Otherwise, you’re likely to end up with completely unsuitable products.
Financial goals can be short term or long-term financial goals. In the short term you may want to clear up your debts, marriage, buying a car or summer vacation, while in the longer term buying a house, children education, retirement and etc. Different goals have different time period and it requires careful selection of investment products to achieve them.
For example,for short term (1-2 years) goals one can look at debt funds, fixed deposit or recurring deposit and for long term goals (5+ years) equities are the best avenue.
4. Insurance
In financial world, there are two important words “Predict” and “Protect”. No body can predict future, hence we can only protect ourself. Insurance is a vehicle to achieve your goals in your absence also. Ask yourself the basic question “Can my family continue with the same life style meeting all the financial needs in your absence”, if “No” is the answer then you must opt for insurance. Is really insurance required for you? when to opt? How much insurance is enough, we will see in coming articles.
5. Setup emergency fund
Everything won’t go as per the plan always. In uncertainties like accident, illness, parent’s surgery; emergency funds play a important role. This money should be invested in safe product with easy accessibility.
6. Knowledge is power
Though every body likes to earn money, most people do not heed when it comes to financial planning due to lack of interest or time. Every individual have different needs and goals, one advice may not work for others. Often people follow parents, friends or seniors and their investment style without understanding the products and finally during crisis they suffer. When so much struggle is done to earn money, why not spend few more hours in planning your own money? As long as we don’t understand the objective of investment products; agents or sales executives can misguide and you end up in buying wrong products.
7. Learn from mistakes
Mistakes do happen, but we must ensure same mistakes are not repeated. Having taken all precautionary measures sometimes our choice may go wrong. Once mistake is identified, try to rectify it and avoid making it in future. If you are not able to solve it; ask expert advice.
8. Update and revisit
As time changes, situation change one should change investment decisions to stay beneficial. Our daily lives are affective by price hike (inflation), tax policies, budgetary measures, personal commitments. Hence, if you cannot spend more time on detail study on any of these at-least having a broad idea is very much essential. At least once in 6 months or year, you need to revisit your portfolio and ask yourself “Am I on track?” “Can I reach my goal?”. If “No”, revise your strategy.
9. Ask for Help: Financial advisers
When we have limited knowledge and time, one should ask for experts advice if required. Financial advisers (Certified Financial Planners) are like financial doctors who study, analyze your financial history and goals and help you build up investment portfolio inline with your goals.
This article gives a brief introduction on most important lessons of the financial planning. I do take up each topic separately and discuss it in coming days. Do comment your learning’s and experience?
