Financial Planning and Investment Tips For Newly Joined Employee

Last Updated on January 28, 2025 by Admin

During this COVID-19 pandemic, we all witnessed that most of the employees across the globe lost their jobs, and various companies were not able to pay their salaries on time. Those who have saved money to face situations like this are not in much trouble, but those who were not prepared for this face financial distress. If you are young and recently joined your first job, kindly check these financial planning and investment tips to make your life prosperous in the coming years.

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It’s always better to learn the art of personal financing and start saving from your first salary. Also, the simplest way to become rich is to follow the rules of financial planning. For young employees, the earlier you start saving for your future needs, the better.

For a fresh graduate in his/her twenties, it is always an exceptional feeling to start a new job. The sense of financial independence, standing on one’s foot is a great confidence booster.

However, what is most important is that with great financial independence comes financial responsibility. It is effortless for new earners to get carried away. So what do you do in this case?’

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Here we are taking a look at a few things you should do in the New Year to strengthen your personal finances. Just landed your first job? Start your financial planning journey with these tips. Making a small number of investments early will lead to substantial wealth in the long run.

Perfect your financial planning for personal finance management and improve your knowledge. Savings and investment tips and why retirement savings are an integral part of your planning.

Financial planning for individuals and financial planning for salaried employees. Best investment tips for students and beginners. Find the answers to the questions: How much savings should I have at 30? How much savings should I have at 40? Read to know about the best investment tips for a salaried person.

1. Create a budget

A budget is a line-item accounting of all your income — salary, maybe a side gig, perhaps income from an investment — and all your expenses. The whole purpose of a budget is to lay everything out in front of you to see where everything is going and make some tweaks if you’re not currently on course to meet your goals.

One way to analyze your current cash flow is through the popular 50/30/20 budgeting framework.

With this approach, the goal is to spend 50% of your after-tax income on essential costs (e.g., rent/mortgage, food, car payments) and 30% on other needed expenses (say, phone and streaming plans) or dining out.

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The final 20% is for savings: building your emergency reserves, socking away money for retirement, and saving up enough funds for a down payment on a house or your next car.

You can use an Excel or Google Docs spreadsheet to help you create a financial planning budget and track your progress. There are also budgeting apps you can sync with bank accounts, making tracking spending easier in real time.

2. Saving for Future Expenses

Save Whatever You Can (No amount is less)

Typically, most of us budget our expenses; we first pay taxes, take care of mandatory expenses like EMI’s, rent, etc., and then spend on lifestyle expenses. After bearing all these expenses, we save what little is left. Many a time, even those small savings are not channeled into productive investments.

Burning one’s fingers in stock trading based on tips from friends and well-wishers or landing up with costly investment-oriented insurance policies are some of the most common mistakes people make at a young age.

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The best strategy for financial planning is to have a savings and Investment Budget in place. This means that you must set aside a fixed amount that you save and then invest wisely from the pay you take home. The balance can then be spent guilt-free.
It is not about how much you save. And it is more about starting to save and investing those savings in a disciplined manner.

Even it means starting with 1 percent of your income and then gradually scaling up to 5-10 percent, and most people can easily save 5-10 percent of their income without feeling the pinch.

Eventually, it would help if you tried to save and invest at least 25 percent of your income. This will ensure that you will have a sizable corpus for your goals over a period of time, and your portfolio will be diversified by adding other asset classes.

Let us recall the time when our mom gave you a piggy bank (gullak). Back then, it used to be a fun activity for you. No matter what amount you earn, big or small, you must first set aside some amount in the form of savings. Then, out of the remaining, you can look to plan your expenses.

The habit of saving helps us in times of financial need. It saves us from the ordeal of seeking out a loan and prevents the possibility of getting stuck in a debt trap.

Budget About 30% of Your Income for Lifestyle Spending includes movies, restaurants, and happy hours—basically, anything that doesn’t cover necessities. By abiding by the 30% rule, you can save and splurge at the same time.

3. Set Financial goals

The quest for money is something every individual undertakes at some point in their life. But what is the result of this quest? This question stumps many people and makes framing personal financial goals before investing such an important juncture.

The value that people attach to money is different for different people. Security, education, travel, philanthropy are only some of the reasons people venture into financial planning.

Over the years, it has been observed that most people might be good savers, but they fail when it comes to investing. Furthermore, diversifying your investment into precious metals can serve as a hedge against economic volatility. Whether you’re considering buying stocks or learning which gold coins to buy, choosing the right financial instruments is crucial.

People can make prudent financial decisions, but many external factors prevent them. Thus, figuring out what value money holds for them, charting an economic journey, and working hard on that journey is essential.

One of the easiest ways to do this is to list “What’s important about money to me?’ For example, what’s important about security to me? Why is making sure my child attends the best universities vital to me?

The answers to this question vary from person to person: a child’s education, security for my family, leading a better, more comfortable lifestyle. However, the next step for each person is to ask themselves, “Why is this particular reason important to me?” Until this answer can be whittled down to “Because it makes me happy,” keep asking yourself the question repeatedly.

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Once this concept is clear, the next step is to understand your own tangible goals for which money will be required. A good way to start is by defining your goals and quantifying them in terms of the amount and the time you want to set to achieve the goal.

Even though your long-term goals might not be clearly defined at this stage in life, it is important to consider them seriously.

Saving and investing to collect funds for your higher education or marriage (which can be met within two years) is a short-term goal. Investing in buying a house is a medium-term goal (two to five years). Saving for your future family and retirement are long-term goals (above five years).

It is also essential to have some liquidity. This can be done by keeping four to six months of expenses in either a savings account or a liquid mutual fund, from which it can be withdrawn within a day in case an urgent need arises.

4. Invest for the long term

Like most good things, wealth creation takes its own sweet time. The sooner you begin, the larger the corpus you can create. Unfortunately, quick fixes seem to be the want of the hour.

Thus, most people want to create a large corpus in a concise amount of time or begin investing too late. This is the perfect recipe for disaster and must be avoided as much as possible.

An early start coupled with a regular and disciplined investment pattern plays a significant role in wealth creation.

An early start for financial planning ensures that you gain a head start over others and that you’ll retire with a larger corpus than someone who starts later in life. This is because the power of compounding works best over long tenures (5 to 30 years) and, therefore, rewards the early bird.

Albert Einstein explains that compounding is the eighth wonder in the world, whose enormity is not understood until it’s experienced first-hand.

For example, if you were to start investing at 40 and invest Rs. 10,000 per month at a 12 percent rate of return, you would receive Rs. 99.91 lakh at returns by the age of 60 (over 20 years).

However, if you were to begin investing the same Rs. Ten thousand one year earlier, at the age of 39 (over 21), in an investment that yields 12 percent a year, you would have Rs. 1.13 crore by the age of 60.

Simply losing out on one year of investing would reduce your corpus by a whopping 13.95 lakh (over ten times the money you invested in a single year, i.e., Rs. 10,000 x 12 months =Rs. 1.20 lakh).

If there were a higher rate of return, such as 15 percent, the difference would be as much as Rs. 25 lakh. This is a clear indication that time does create money.

The disadvantages aren’t limited to simply that much; starting late in the investment and financial planning game increases stress on one’s finances as one tries to catch up with others.

A late starter must also invest more each month to create the same kind of corpus. The key is to invest for the long term to achieve goals and accumulate wealth and not to make a quick buck in a short span of time. For those beginning to strategize their financial future, exploring various savings options is key. Among these, the savings account of Western Alliance stands out for its high yields, providing an effective vehicle for saving and growing your funds efficiently. Making informed decisions about where to park your savings can significantly impact your financial health.

5. Take Life Insurance

This is probably one of the most important investments that each individual must make as part of their financial planning. For new earners, it should also be one of the first investments.

A life insurance policy provides a financial safety net for your loved ones, providing financial security and peace of mind.

While choosing an insurance policy, one must conduct proper research, read and understand the terms and conditions carefully, check the lock-in period, and not hide any information from the insurance companies.

Term insurance is top-rated and recommended nowadays. However, there are various life insurance plans, and one must choose the plan carefully.

A term insurance policy is purchased for a fixed term, like 20 years or 30 years, and so on.

6. Improve Your Salary Structure

Most of us give the most priority to Cost to Company (CTC). Whereas CTC is indeed one of the essential aspects of our job, one must also keep an eye on how taxation works.

Did you know you could easily save on tax by tweaking and adjusting your salary structure? Moreover, all this and much more can be done without changing the total CTC.

Sounds cool? Let’s have a look at how this is possible.

The essential component, which is probably the central part of your salary, generally includes basic pay, House Rent Allowance (HRA), dearness allowance (DA), and special allowance.

All employees, especially new earners, must know that every component is fully taxable except the HRA component.

In this line, an easy and logical way to reduce tax liability could be to cut the total basic pay and adjust it as perks or long-term benefits.

New employees must also understand that a higher basic would mean higher HRA, DA, and provident fund contributions. This is because these components are generally linked to and are calculated as a certain % of the basic salary.

Now, what a higher basic salary implies is that the corresponding higher DA will be taxable, and the PF contributions are tax-free, but this shall reduce your take-home salary.

To sum it up, new employees can save on their taxes by adjusting their salary structure to make it more tax-efficient. Good knowledge of the taxation system and rules thereof helps to save taxes.

7. Consulting a Financial Adviser

A financial planner is skilled at advising clients to make suitable investments to meet a desired financial target. The expertise is often very beneficial, especially for those who do not possess the professional knowledge and or time required to plan their finances.

Consultancy may not necessarily be seen as a cost but as an investment. However, this is avoidable if and only if you are well-read and can manage your own assets.

8. Create your personal investment Portfolio

Constructing your first investment portfolio is an achievement in itself. After all, it is your first step towards wealth accumulation.

Building a portfolio involves distributing your investment amongst asset classes like equity, debt, and cash. It is known as asset allocation. However, equity is the best tax-efficient and inflation-countering vehicle. However, putting all your money into inequity isn’t a prudent move.

It would help if you diversified the sums to be allocated in each asset class per your investment goals. It is always wiser to be a long-term investor to accumulate a greater corpus. Your investment horizon would ideally be around 10-15 years.

Once you have constructed a portfolio, you must rebalance it periodically to keep the portfolio risk within expected limits. This is relevant from the standpoint of market fluctuations. At the very outset, you may decide the time intervals after which you will be rebalancing. You can do it once every six months or a year.

Start by identifying goals like buying a car or financial planning for retirement. Then, categorize those goals into short-term and long-term. Goals that can be achieved within 1 to 3 years are essentially short-term. Goals that need a horizon of 3-5 years are called medium-term goals.

Goals that require more than five years to achieve our long-term goals. Then, identify your risk appetite, i.e., the degree to which you are comfortable with a fall in the value of your investments. If you can digest, say, a 20% fall in the value of assets, you are a high-risk seeker.

Otherwise, categorize yourself as a risk-averse person. You can conveniently select the investment haven after identifying your goals and risk appetite. A risk-seeker may go for a diversified equity fund. Conversely, a risk-averse short-term investor may go to a liquid or balanced fund.

Mutual funds have emerged as the most versatile investment haven. For a nominal sum of Rs 500, you can start a systematic investment plan (SIP). Under SIP, a fixed amount is deducted from your savings and invested in a mutual fund scheme of your choice.

9. Avoid Credit Cards

It’s good to keep credit cards until you pay the dues on time, but once you start exceeding your credit limits, you may run out of money in the future. Going cashless through credit cards is undoubtedly a better option, but it should be done under proper control.

Do not get excited by the credit limit given to you, which is approximately 2 to 3 times your salary. Making the necessary expenses from your credit card and keeping the costs lower than your salary limit is advisable. Eventually, you must pay your dues from your salary unless you are not earning money from other sources.

10. Don’t Fall into a Debt Trap (Avoid Personal Loans)

Lack of debt management may consume a major part of your monthly salary. You may end up borrowing fresh loans to pay off older loans. You may fall into a vicious debt trap if it gets out of control.

Your critical life goals may be sidelined, and even your retirement may be delayed. However, strategizing your debt payment may keep you away from such troubles. All you need is to be informed about how much you owe to whom. And chalk out a schedule to pay them off.

If you have a lot of debt, start paying off the most expensive one. Credit cards have been regarded as the most costly form of debt. Pay off your credit card balances in full once your salary gets credited each month.

Don’t fall for the lure of paying off the minimum balance. Even before you know it, the interest will spiral up to exhaust your savings. Make it a point to use the credit card only in case of emergency. Always keep debt as a last resort. As far as possible, make down payments for your purchases.

If you are shouldering big-ticket loans, look for a portability option. You can transfer your loan to another bank offering a lesser interest rate. In this manner, you will save a lot of money going out as interest. Never borrow for assets that are depreciating.

Tax-inefficient loans like personal loans can be avoided as much as possible. Consider saving and building a corpus to fulfill your goals. This way, you can avoid falling into a debt trap.

11. Retirement planning

Start saving for your retirement. Why is it necessary? The earlier you start, the more corpus you will generate at the time of retirement.

For example, if you are 25 and want to retire at 55, you will get 30 years of time horizon on your investments. So, by saving Rs.3000 a month, you can generate approximately up to Rs. 2 Cr. Isn’t it that good? You can even increase your investment amount from time to time.

12. Do proper tax planning

Tax awareness is necessary for every employee, whether you currently fall into the tax bracket or not. If that is not the case, then you may never know why that much tax suddenly got deducted from your salary. So, it is better to calculate your taxable amount every year for your financial planning goal. Invest in such a way that you can avail tax benefits altogether.

13. Emergency Fund

Always save 3 to 6 months of your expenses in a bank account that can be used in emergencies. To maintain an emergency fund, you must develop a saving habit. Save before making any purchase of goods. As soon as you get your salary transferred, shift your savings amount into another bank account so that you don’t use that amount for any purchase.

Wrapping Up

Navigating the domain of financial planning and investment can seem daunting for a newly joined employee. However, the right approach and resources can become an empowering aspect of personal and professional growth.

Financial planning for salaried employees encompasses a range of strategies and tools designed to help individuals manage their income, save effectively, and invest wisely to secure their financial future.

One essential resource available for free to newly joined employees is financial planning and investment tips, which can be found online, in books, or through workshops and seminars. These resources often provide valuable insights into budgeting, saving for emergencies, investing in retirement accounts, and other crucial aspects of financial health.

For those who prefer a more structured approach, financial planning for salaried employees can be illustrated through PowerPoint presentations (PPT), which break down complex financial concepts into understandable segments. These presentations can be beneficial during financial literacy workshops or employee onboarding sessions, offering visual aids and step-by-step guides.

Similarly, Excel spreadsheets are invaluable tools for financial planning. They allow salaried employees to create personalized budgets, track expenses, and forecast savings. With numerous templates available, an Excel spreadsheet can be a dynamic resource for managing finances precisely.

Comprehensive guides and handbooks in PDF format are also available, providing in-depth discussions on financial planning for salaried employees. These documents can cover everything from basic financial literacy to advanced investment strategies, offering a portable and accessible way to deepen one’s understanding of personal finance.

Additionally, online personal finance calculators can be a game-changer. These calculators help assess how much to save for retirement, emergency funds, or large purchases, considering various factors like income, expenses, and financial goals.

Effective financial planning for salaried employees involves a balanced approach to managing current needs and future aspirations. By leveraging these tools and resources, newly joined employees can set themselves on a path to financial stability and success, making informed decisions that compound positively over time.

We have tried to cover most of the critical personal financial planning tips and guidelines you must adhere to. I hope that these financial tips will help you make the right decisions and achieve your financial goals in the future!

Financial Terms and Their Definitions Used in this Article

Financial Planning and Investment Tips: Strategies for managing personal finances to achieve financial security and goals.
Personal Financing: Managing one’s finances through budgeting, saving, investing, and planning.
Budgeting: Creating a plan for how to spend and save money based on income and expenses.
Investment: Allocating resources, usually money, with the expectation of generating an income or profit.
Savings: Money set aside for future use, not spent immediately.
Emergency Reserves: Funds saved for unexpected expenses.
Retirement Savings: Money saved to provide income in retirement.
Cash Flow Analysis: Assessing the inflows and outflows of cash to manage financial activities effectively.
50/30/20 Budgeting Framework: A budgeting technique dividing after-tax income into 50% for needs, 30% for wants, and 20% for savings.
Investment-Oriented Insurance Policies: Insurance products that combine protection with an investment component.
Asset Allocation: Distributing investments across various asset classes to balance risk and reward.
Compounding: The process where the value of an investment increases because the earnings on an investment, both capital gains and interest, earn interest as time passes.
Term Insurance: A life insurance policy that provides coverage for a certain period.
Salary Structure: The organization of different components of an employee’s compensation package.
Tax Efficiency: Structuring financial activities to minimize tax liability.
Financial Adviser: A professional who provides advice on managing finances and planning for financial goals.
Investment Portfolio: A collection of investments held by an individual or institution.
Systematic Investment Plan (SIP): This is an investment strategy in which an investor invests a fixed amount regularly in a mutual fund.
Credit Cards: Financial instruments that allow the holder to borrow funds for purchases or cash advances.
Debt Management: Strategies to manage and pay off debts effectively.
Liquid Mutual Fund: A type of mutual fund that invests in short-term market instruments like treasury bills and commercial paper.
Tax Planning: Strategizing to minimize tax liability through various exemptions, deductions, and benefits.
Emergency Fund: Savings for unexpected expenses, such as medical emergencies or job loss.
Retirement Planning: Preparing financially for retirement, including saving and investing to ensure financial security in the later years.

These terms and concepts are foundational to understanding and applying financial planning and investment strategies. The article encourages early and wise financial planning, highlighting the significance of starting with budgeting, saving a portion of one’s income, and making informed investment choices to build wealth over time.

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FAQs

What key financial planning strategies should a newcomer in the workforce be aware of?

Newcomers in the workforce should focus on budgeting, establishing an emergency fund, setting short-term and long-term financial goals, investing early for retirement, managing debts, ensuring adequate insurance coverage, and continually educating themselves about personal finance.

What are the seven steps of financial planning?

The seven steps of financial planning include: 1) Defining your financial goals, 2) Gathering data on your current financial status, 3) Analyzing and evaluating your financial situation, 4) Developing a financial plan, 5) Implementing the plan, 6) Monitoring progress and making adjustments, and 7) Re-evaluating and revising the plan as necessary.

What does financial planning for salaried employees entail?

Financial planning for salaried employees involves creating a budget to manage expenses, saving for future financial goals, investing wisely to build wealth over time, preparing for emergencies by creating a financial cushion, and planning for retirement through appropriate retirement savings accounts.

How should you manage your money after starting your first job?

After starting your first job, manage your money by budgeting wisely, prioritizing savings, paying off any debts, investing early, setting aside money for an emergency fund, and planning for your long-term financial future, including retirement savings.