Last Updated on February 16, 2021 by Admin
During this Covid-19 pandemic, we all have witnessed that most of the employees across the globe lost their jobs, and also the various companies are not in a position to pay the salaries on time to their employees. Those who have saved money to face situations like this are not in much trouble but, those who were not prepared for this are facing 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.
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 early you start saving for your future needs, the better it will be for you.
For a fresh graduate in his/her twenties, it is always an exceptional feeling to start a new job. The feeling of financial independence, standing on one’s own foot is a great confidence booster. However, what is most important is that with great financial independence comes financial responsibility. It is very easy for new earners to get carried away. So what do you do in this case?’
Here we are taking a look at a few things which 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 at an early stage will lead to a substantial amount of wealth in the long run.
Perfect your financial planning for personal finance management and improve your knowledge. Savings and investment tips and why saving for retirement is an important part of your planning.
Financial planning for individuals and financial planning for salaried employees. Best investment tips for students and beginners. Find the answers for 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
One way to analyze your current cash flow is to run it 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.
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 that can make it easier to track spending 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.
The best strategy for financial planning is to have a savings and Investment Budget in place. This means that from the pay you take home, you must set aside a fixed amount that you save and then invest wisely. The balance can then be spent guilt-free.
It is not about how much you save, 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, most people can easily save 5-10 percent of their income without feeling the pinch.
Eventually, you should try to save and invest at least 25 percent of your income. This will ensure that over a period of time you will have a sizable corpus for your goals 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, this includes movies, restaurants, and happy hours—basically, anything that doesn’t cover basic 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 is a question that stumps a lot of people and what makes framing personal financial goals prior to 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 when it comes to investing, they fail.
People can make prudent financial decisions but there exist a whole lot of external factors that prevent them from doing so. Thus, figuring out what value money holds for them, charting a financial journey, and working hard on that journey is important.
One of the easiest ways to do this is to list down “What’s important about money to me?’ Eg: What’s important about security to me? Why is making sure my child goes to the best universities so important 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.
Once this concept is clear, the next step is to understand your own tangible goals for which this money will be required. A good way to start is to start defining your goals and quantifying them in terms of the amount and the time you want to set to achieve the goal.
Even though at this stage in life, your long-term goals might not be very clearly defined, it is important to give it a serious thought. 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 for retirement are long-term goals (above five years).
It is also very important 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 where it can be withdrawn within a day, in case an urgent need arises.
4. Invest for the long term
Like most good things in life, 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 very short amount of time or they begin investing too late. This turns out to be the perfect recipe for disaster and is one that must be avoided as much as possible.
An early start coupled with a regular and disciplined investment pattern has a significant role to play 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, the enormity of which is not understood until it’s experienced first-hand.
For example, if you were to start investing at the age of 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 a period of 20 years).
However, if you were to begin investing the same Rs. 10,000 one year earlier, at the age of 39 years (over a period of 21 years) 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 was 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.