How to Utilize your First Salary Efficiently

The joy of receiving your first salary is always special. It is not just a key to financial independence but also a ticket to turning dreams into reality. So, it is exciting to celebrate and spend your first paycheck generously.?

However, it is essential to keep in mind that you also need to get ahead of the curve. With your first salary, you are stepping into the next phase of life where the responsibilities will keep increasing.

Thus, cultivating healthy financial habits should start with the very first salary.

While most people think savings is the key to money management, unfortunately, that’s not the case. Let’s understand why.

Strategizing your finances

In order to keep your finances on track, you need to have a financial plan. To strategize and make a plan that resonates with your goals might sound easy. However, as easy as it sounds, many people either fail to plan or stick to it if they create one. Hence, it results in poor spending habits and financial standing.

Today, 62% of working millennials are unhappy with their financial status.

(Source: The Economic Times )

To achieve happiness, follow a simple rule when budgeting and planning.

50-30-20 rule

The 50-30-20 rule is simple and effective. Divide your monthly income into three parts. Ensure you prioritize your needs like rent, groceries, fuel expenses, etc. Utilize 50% of your income towards your needs and 30% towards your wants. Wants may include investing in your hobbies, interests, shopping, dining, etc. Save the remaining 20% for savings and investments, as this will help to limit your expenses. You can change the percentage gradually as the cash flow increases.

How does financial planning play a significant role?

It is imperative to create a strategy to manage your income wisely, as this prepares you for any unforeseen circumstances. The future is uncertain, so make sure that you are prepared for future contingencies. You can always create an emergency fund where you transfer a certain amount of money every month. Ideally, this amount should be equivalent to six months of your salary.

The plan will also help you to save for your dream house, car, vacation or any other goal that you have been thinking about. And, there’s certainly a simple way to do that.

Start investing!?

As a beginner, investing may seem daunting. However, there is a lot of information available to learn from, before you actually start investing. Do your own research before making any decision and it would be wise to consult a financial advisor to choose the right instrument and investment product for you.?

Start investing small amounts through Systematic Investment Plans (SIPs), which allow you to invest a fixed amount monthly/quarterly in mutual funds. If you are just starting, you can start with an amount as low as Rs.500. It’s a flexible investment instrument that allows you to choose the amount, frequency and tenure of your investments accordingly.

SIP has the potential to provide substantial returns over time. This is possible with the power of compounding, and to harness this power you should start investing as early as possible. Additionally, you can make this happen by investing regularly for a longer period.?

How can you #WinWithSIP ?

You may have different financial goals that you aspire to achieve and SIP can be your most reliable companion. You can have separate SIPs for each of your goals to ensure effective planning.?

And, with every goal, you can #WinWithSIP !

Let’s say you want to plan for your dream car. The goal is to build a corpus of Rs. 20 Lakhs in 7 years with the expected return of 12%. Then, you should start a monthly SIP of Rs. 15,154 (approx.) The breakup of the returns is illustrated below:

(Source: Scripbox )

(Disclaimer: The above is for illustration purposes only. Past performance may or may not be sustained in future. Returns are compounded annualized growth rate. This is not investment advice and investors should consult their financial advisor before making any investment decisions.)

Your first paycheck is an instrumental step towards achieving financial stability and happiness. With SIP, you can be closer to your financial goals than you seem to be. Make sure that you find the right balance between spending & investing and keep building healthy financial habits. Remember that “well begun is half done.”?

Don't miss a day and Take advantage of compounding with an SIP today!

Disclaimer: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.