You are just a few years into your career and it feels great to earn and be on your own. You are no more dependent on anyone else financially. The entire pay check is yours, gone are the days of pocket money. Along with the freedom to take your own decisions, comes the responsibility of maintaining your finances well. These are the years when you have lesser responsibilities to cater to, so learn to make the most of these years financially and make a good base for yourself.
The rules of the financial game are simple and it requires just a bit of effort from your end and lo we are all set. Here are the 10 financial commandments for any young professional.
1. You shall keep a track of expenses: This is the cornerstone of any financial exercise. Be aware of what your take home salary is. CTC (Cost to company) figure quoted during your interview is different from what you get in hand after mandatory deductions. While we are aware of our salaries, we hardly realise how our bank accounts seem empty towards the end of the month. Stop being unaware, get a hold of your expenses. Keep an account of your spending. If it seems too tedious to do it manually, make use of one of the many software and applications available to track income and expenses like Toshl, My Universe and many more.
- Chalk out a budget: What is the use of tracking your expenses, if you don’t know where to limit them? Sometime, into tracking your expenses, you would know your average expenses and your spending habits. If you are an impulsive buyer, or what do you spend more on, eating out, clothes, travel etc. Make a list of mandatory expenses like rent, commuting, food and draw up a budget. Give yourself some allowance for those shopping trips to the mall or traveling out to newer destinations. Once your budget is drawn up, stick to it. Minor one off deviations are tolerable.
3. Insure yourself: Right now you may or may not have dependents, however it shouldn’t be the only factor to decide whether you buy insurance or not. Insurance is required for everyone, and the earlier you buy, lesser the premiums through -out. Life and health insurance, both are absolutely essential. Health and life insurance is available online for buying.
4. Handle credit cards carefully: Credit cards are the instruments of convenience, but beware of the side effects too!! Go in for a card that comes in with a low rate of interest (Well, hard to find though) and maximum benefits. A card from the bank where you hold your account may bring in added benefits. Do not be lured by numerous telecallers offering you credit cards. Remember more the number of cards; more you might end up spending. Always remember that though your credit card statement may show a small Minimum Payment Due amount, pay up the entire amount before the due date or you would be charged interest as high as 24% per annum on unpaid amount. Never withdraw cash from your credit card account.
5. Commit to paying bills on time: Timely payment of any bills or EMIs is a good habit to develop and to avoid extra payment on account of penalties or interest. Late payment or non-payment of EMIs or credit card bills could affect your credit score in the wrong way. Later, when you begin shouldering bigger responsibilities and intend taking loans to fund your home, vehicle or anything else, a bad credit score would mar the chances of you getting the loan.
6. Repay debt as soon as possible: Many of you probably funded your higher education with a loan with one of your parent as the guarantor. Now that you have started earning repaying that debt off should be one of the topmost priorities to avoid paying interest on that front.
7. Build an emergency fund: Nothing is permanent in this world; the same is true with your job. Like the subprime crisis of 2008 left many unemployed, contingencies are bound to occur. It might be a medical emergency that may leave you incapacitated or a natural calamity, be prepared. It pays to save up at least 3 months worth of expenses in a separate account and resist the temptation to dip in to that account.
8. Set up goals for life: Each one has different goals in life. Determine long term goals that you would like to achieve like buying a house, vehicle, wedding, starting your own venture etc and also for retirement. Though it may seem a long way to go, it is better to start saving a small amount towards retirement fund. Never under estimate the power of compounding.
- Get into the habit of investing: The only way to see your money grow and work for you is investing. You manage to save a good portion of your salary, but if you fail to invest the same the value of your money will get eroded with time. Depending upon your risk profile and the goals that you wish to achieve, choose from different available avenues of investment. It could be real estate, stocks and shares, mutual funds or fixed deposits etc. If you do not understand how to go about doing this, do not hesitate to engage the services of a financial planner.
- Invest in yourself: Last but probably the most important investment that you could make, is in yourself. This is the time, when you could engage in bettering your skill sets, attaining higher qualifications or giving yourself varied experience so that it helps in your future career growth. Do not shy away from making this investment; it may come at the cost of some other comforts. It would definitely be worth.