Rohit received an SMS while having breakfast with his dad. There was a grin on his face when he read his message. His dad inquisitively questioned him, “Is it a good news?” Rohit replied, “Yes my salary is credited slightly before time. I guess due to the upcoming public holidays, my company’s HR proponed our salary schedule.”
Rohit’s dad said, “ Wow! That’s great! So what’s the plan?” Rohit replied, “I was planning to buy new headsets and a new smartphone if possible.”
His dad said, “Ok. That’s nice. And what about investments?”
Rohit then replied, “ Dad, I have just started my professional life, it’s just been a year and I haven’t thought about investments.”
His dad said, “Son, as you think about how to make the most of this joyful moment, spending is on top of your mind. Not that you can be blamed for it. Go ahead and plan a celebration. While you do that, you may want to know a few things that may be useful on the same day next month and thereafter.
- Pay yourself first:
This simply means that out of what you earn, a certain percentage must be saved before you spend. The rule should be ‘Income – Savings = Expenses’ and not vice-versa. To do this properly, you must first identify your goal, estimate any adjustments and then figure out what you would have to save in total.
- Create a Budget:
Keeping a budget in mind when you get your salary will tell you what should be your estimated expenses for the month. To create a budget for yourself, evaluate your monthly expenses like rent, daily utilities, EMIs, and other essentials. Remember to add an emergency fund for unexpected expenses.
- Reduce Your Expenses:
Once your budget is finalized, start monitoring your expenses. Evaluate the necessary expenses and the ones which can be easily avoided. You can then reduce expenses that are not necessary. This exercise will get you one step closer to your financial goals.
- Protect your loved ones:
You may be young right now but tomorrow you will have responsibilities. Your family and loved ones would be financially dependent on you. The first pillar of all your financial plans is insurance. It is an important tool that will help you secure the future. Ideally, you should have a life cover at least 10 times of your annual income. The most cost-effective life insurance that you could go for is a term plan. It provides high coverage at low premiums. When it comes to premium amount, being young is an advantage as your premium amount is directly proportionate to your age.
- Monitor your investment:
Just like a medical check-up, investments need to be monitored regularly. You need to build an investment portfolio and eventually monitor the same. You should monitor investments for both your short-term goals and long-term goals.
- Save Taxes:
While the rules and tax slabs change with time, taxation itself hasn’t changed yet. Taxes affect every aspect of your finances, from your income to all your expenses and purchases. You can take measures to save taxes by investing your savings. Putting your money in the new age ULIP, Edelweiss Tokio Life Wealth Plus can help you save tax while you maximize your wealth.
- Pay off debts:
Debt can be a huge obstacle in the way of your financial goals. Eliminating these liabilities should be your priority before you start planning anything solid for your future.
- Build a retirement corpus
We all want to enjoy our retirement just as we enjoy our youthful days. A smooth life post-retirement means cultivating the habit of savings as early as possible. The future can be unpredictable but that doesn’t mean you can’t be prepared for it. There are good retirement solutions available that can help you build enough corpus for your retirement.
After listening to his dad, Rohit thanked his dad for his wise advice on financial planning. Just like Rohit, there are many youngsters who feel financial planning is very complex but there is nothing in the world that you cannot learn and understand, including personal finance. It may sound complex at the start but with proper understanding, you can master it.
No matter what your financial goals are, it is never too early to start.