TIPS FOR FINANCIAL PLANNING

TIPS FOR FINANCIAL PLANNING

 MAKE A BUDGET & START SAVING

 

Budgeting is the simple exercise of reconciling your income with your expenses, and should be your first step. Note down your monthly spending as per your ease of usage: Excel sheet, simple diary, mobile app, or desktop. The aim is to know how much you spend under various heads .

 FRAME YOUR FINANCIAL GOALS
You have started saving, but will you have enough to buy a house 10 years down the line, or even a car five years hence? People tend to save aggressively and invest with extreme vigor, but do so blindly, jeopardizing their goals. This is a mistake common to most investors, irrespective of the age group. The next step then is to frame your goals.

After you have budgeted for 3-4 months, you will realize that your expenses can be sorted into three categories: essential, discretionary and entertainment. "Tracking of budget is important not only to identify mandatory and discretionary spends, but also ensure that you don't overspend

Don't forget to factor in inflation while calculating the amount since it will shoot up the value of your goal. If you decide to buy a car that costs Rs 5 lakh today after seven years, it will cost you Rs 8.5 lakh if you consider 8% inflation. Similarly, the post-tax returns from a fixed deposit that offers 7.5% return may not be able to beat the rise in prices over the long term. 

INVEST IN RIGHT INSTRUMENTS
 
The biggest dilemma that young earners face is where to invest their money.To start with, just choose simple instruments like a recurring or fixed deposit. Once you have prioritized your goals, then think about converting your savings to investments. If you are not familiar with instruments, pick options that are readily available, say, in a bank, and offer liquidity.

MAXIMISE TAX SAVINGS

 

Saving tax is not a priority for most new earners because the salary is not too high, nor the knowledge regarding taxability of instruments. Do not be obsessed with investing just for saving tax as some expenditures may be useful.

However, it is important to brush up your tax awareness at the earliest. Start with avenues that offer tax deduction of Rs 1.5 lakh under Section 80C.

OPT FOR THE RIGHT INSURANCE

 

The basic purpose of insurance is to cover risks in your life, not offer returns. Still, most people confuse it with investment because of the products in the market that offer both. While you may not feel much need for any kind of cover when you are young, it's best to know about the various types at the start of your financial life.

IMPROVE YOUR SALARY STRUCTURE
 
You may have had the best package in campus placement, but the salary would still seem less compared to that of your seniors at work. This is something beyond your control. What is in your hands is making the most of what the company is offering you.

The government does not recognize the concept of CTC in computing for statutory heads, such as Employee Provident Fund (EPF), Employees' State Insurance, gratuity and bonus.

SAVE FOR AN EMERGENCY
 
Caught in the thrill of making money, the urgency to buy things and eagerness to save for bigger goals like a house and a car, the new earners typically forget the preparation for financial emergencies. Be it the sudden loss of job, medical eventuality or sudden financial support required by a family member, you will need to be ready for contingencies.

AVOID DEBT TRAPS
 
You are probably the most vulnerable when it comes to debt traps as you start working. With few responsibilities and the new-found power of money and credit card, it's difficult to curb the consumerist urges. You should understand the difference between needs, wants and greed. Credit card is not the only path to debt hell. Here are the various ways you can plunge into liabilities when you start working.