The first salary is a wonderful feeling. It is like a dream come true. You get a totally different feel when you start earning your money. But, due to lack of awareness on financial planning, many people are clueless on how to manage money.
According to the study, more than half the people who earn a salary each month live paycheck to paycheck without any emergency fund. Earning money is not just enough. You must also make your money work for you. In this blog, we will guide first-time salary earners on how to manage their finances.
The first step of financial planning is making a budget. You can’t have financial discipline, without maintaining a budget. So, you should create a monthly budget and stick to it. Creating a budget and sticking to it will make sure you don't spend excessively and you save a certain amount each month. Budget is created by noting down the monthly income and expenditure. While you make a budget, make sure your expenditure is not more than 60% of your income.
Saving is the most important step in financial planning. You must not save what is left after spending; instead you must spend what is left after saving. You should always set aside at least 20% of your income to invest in financial instruments which reap long term benefits. Saving should be a part of your financial routine and you must never miss saving each month.
See Also: Importance of Financial Planning
Life is uncertain and you never know what tomorrow brings. So, it is very important to build an emergency fund. An emergency fund makes sure that you have money for emergencies. If you are single, you must have at least 3 months of salary in your emergency fund. Its 6 months if you are married.
You might find tax planning difficult. But, it is very important to have knowledge on taxes, income tax deductions and exemptions, government tax saving schemes and so on. The basic knowledge on taxes will help save tax through various deductions and also you can structure your salary to enjoy maximum benefits.
See Also: Steps in the Financial Planning Process
If you have availed an education loan for higher studies, you must pay it off from the first salary itself. Even though education loan is a good loan, its repayment should be your priority. The interest you pay on your loan is a real burden.
Availing both health and term insurance at a young age, reduces the premium. But, don't buy term insurance at an early age if you don't have dependents, just to lock on to low premiums. On the other hand, availing health insurance as early as possible is very important. You must do proper research and avail the health insurance policy which meets your long-term health needs.
Not happy with a product or service? Just visit IndianMoney.com’s complaint portal IamCheated.com and post your issue. We’ll get in touch with the concerned entity and help you with the resolution. With an aim to spread awareness on fraudulent activities, we publish articles and videos on a regular basis. You can also publish reviews about companies on IamCheated.com
Subscribe to our Youtube Channel
This is to inform that Suvision Holdings Pvt Ltd ("IndianMoney.com") do not charge any fees/security deposit/advances towards outsourcing any of its activities. All stake holders are cautioned against any such fraud.