Financial Planning

Financial Tips for New Earners

Experts say borrowers should refrain from taking other big-ticket loans for a few years because that can stretch their finances. There is no tax on individuals earning up to Rs 5 lakh a year.

I pay my bills, spend through the month and save whatever is left at the end of the month.

Coming from a 25-year-old who started working only four months back, this spending pattern comes as no surprise. “First jobs are financially exciting. There are aspirations to be fulfilled with money earned on one’s own,

It is well known that the earlier you start saving and investing, the brighter your future will be. “The benefits of starting early cannot be overstated. Building discipline in the early years is crucial for long-term success. In this week’s cover story, we have identified seven smart money moves that new earners should make. From how to budget to maximizing your employee benefits to picking the right insurance, take these baby steps towards a successful.

Read More: Know about Tax Saving Investments

It is easy to determine how much you spend on rent, groceries, conveyance, and utilities. But you are likely to miss out on the peewee spends. After Sushant Rawat (see picture) signed up with an expense tracker app, he realized how much he was spending on eating out. “Small bills of Rs 250-300 would go unnoticed. But the statement at the end of the month showed how these were eating a big chunk of my income,” says the 23-year old architect.

Experts advise that you should record each and every transaction for a couple of months to get a hang of your spending pattern. “It is better to pen down purchases in a diary, phone or an excel sheet as opposed to mental calculations,” says Amit Suri, a Delhi-based financial planner. Or you can sign up with a money management app such as Chillr, ETMoney or Walnut to simplify your work.

Once you know how much you spend for different things, allocate a budget to each head of expense. “It’s hard to put the brakes on spending when you start earning. Monitoring expenses will ensure you don’t overspend on discretionary items,” says Priya Sunder, Director, PeakAlpha Investment Services.

Save for goals, don’t borrow 
Apart from smaller discretionary spends, there will be bigger expenses such as holidays or buying a gadget. Studies show that Gen Y is unafraid to take loans to fund these dreams. “Easy access to credit has led to a paradigm shift in the way the young generation spends, saves and invests,” says Ashish Shanker, Head-Investment Advisory, Motilal Oswal Private Wealth Management. It is no surprise then that IndiaLends, a digital lending company.

Personal loans are one of the costliest forms of borrowing, charging 20-24% interest per annum. Credit cards are even costlier and can become a burden if not used judiciously. As a rule, do not spend more than 30% of your income at a time on repayments. Cheema has done exactly this. “I have capped EMI financing at 20% of my salary,” she says.

If using credit cards, make sure to pay the bill in full by the due date every month. Failure to repay even a part of the monthly bill will attract additional interest on the overdue amount as well as on every new swipe. “Rolling over the due amount can disturb your monthly budget. Interest on rollover balance can be as high as 40% per year,” Mehta adds. If you don’t have the discipline, stick to debit cards.

Read More: Tax Saving Investments Other Than 80C

The most effective way to save for your big-ticket expenses is to stash away.

Create an emergency fund 
Financial planners insist that setting up an emergency fund should be a top priority. “Unexpected expenses keep cropping up and availability of funds is always a problem with youngsters leading fast-paced lifestyles,” says Rohit Shah, Founder, and CEO, Getting You Rich. An emergency fund is meant to help you tide over unforeseen expenses, such as vehicle repairs, a broken phone, a medical emergency or even a job loss, without having to borrow.

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