Receiving the first salary is very special to everyone. In India, the general tendency is to spend the salary by buying gifts for your loved ones. But, while celebrating this special moment, it is equally very important to think about how you would use the salary. So, here we are with a financial plan for your first income.
Using your earnings effectively and having a good financial plan right from the very beginning, will ensure a balanced financial life throughout and help in wealth creation.
Your future financial life will flourish, if the beginning is well planned.
How much you earn, will not and cannot, at all points of time, match with how much you need.
Just like we store excess water in Dams during the monsoon, so we can use it throughout the year, the same concept should be applied to your money as well.
Saving
Saving a part of your income for a rainy day is the most smart and intelligent decision you will ever make. If you save a good part of your income now that will help you to live a good life in your future – when you need to travel the world, do meaningful work in life or just live a rich life.
And, the best time to start doing this is when you get your first salary.
Budgeting
Before investing, comes budgeting. And, the golden rule of budgeting is the 50:30:20 Rule which says that 50% of your income should be kept for your needs, 30% for wants and 20% should be saved.
You can use your salary in the following steps:
1.Life Insurance: Who would like to take a life insurance policy from his first salary? Right? But, it can turn out to be one of the best decisions of your life. You may think you do not require insurance at this point of time. And that instead of paying insurance premium, why not invest this money in equity. You may not feel the need now as you may not have any dependents on you. But, today you may not have dependents but, in the coming years you may start a family. Also, you may think insurance is expensive. But, this is not the case. When you buy early, then you get a life insurance plan at low rates.
The reason why it is advised to take life insurance early when you have just started earning, is because the premium amount gets fixed. So, if you are 24 or 25 yrs, and you apply for insurance, then the premium will be low because risk is low, and the same premium will be applied for lifetime.
Life insurance is not meant for retired people and students, as they do not have dependents. And, the amount of insurance should be ideally 20times of your current annual salary.
While buying insurance, the claim settlement ratio and amount settlement of the company is to be looked at.
2. Emergency Fund: Then you should plan for an emergency fund. You should keep at least 6 months of your salary as an emergency fund in liquid, before you start investing. As you have started earning, you may be ambitious and may look for better job options. So, to protect your daily expenses in case of switching of a job or any such case, it is important to have an emergency fund which will keep you relaxed even if you take a break from your current job in search of better opportunities.
3. Investing: You must be aware of the power of compounding. Let us take an example to understand this better. Let’s say there are 3 persons X, Y and Z. Now, X starts investing from the age of 21, Y starts from the age 31, and Z starts at 41. If they invest till the age of 60yrs. If we take ROI as 10%, & monthly investment being Rs10,000 in case of X, Rs 20,000 in case of Y and Rs 30,000 in case of Z. Now, when they all reach 60 yrs of age, the total corpus X has is Rs 5.71 Crs, Y has 4 Crs, Z has 2 Crs. You can see that even when Z invested thrice as compared to X, even then the net worth of X was way more than Z’s. That is why the power of compounding is also called the magical formula. It has wonderful effects with time.
So, start your investment journey as and when you start earning, to create great wealth.
So, let your money earn you more money. Start saving right away and see how your life changes. Start small, end big.
If you want a customized Financial Plan for your First Income , connect with us.
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