How you should plan your savings with your first salary?

The happiness when you receive the message: 'Your salary has been credited.. " for the first time is unmeasurable ??. Receiving the first salary means finally being independent, and being able to buy the clothes or your favourite electronic gear that has been on your Wishlist for months. However, becoming independent does not mean finding different ways to splurge money but one should know how to invest their money wisely to strike a balance between your luxuries and life savings ??.?

Below are the options where you can start planning your savings. It has been prioritised as mentioned in the order. Obviously you can't buy all of them with your first month saving but you should be disciplined enough in buying eventually.

1. Build an emergency corpus??

In the last two years because of the pandemic many of us have seen grave emergencies, including job loss, pay cuts, and death of a family member. Thus, it is important to have an emergency fund to fight any exigency. An emergency fund is a contingency fund that not only helps financially during most difficult times but also prevents the derailment of your saving for long term goals.

It should be your 3-6 months of salary parked in your savings account.

2. Buy a Health Insurance

Being an earning member of your family, you must create a security net for yourself and your family members now. In the long run, health insurance saves you from sudden healthcare expenditure, thereby ensuring your other investment plans remain on track.

If you are a family of 4 keep a cover of at-least 20 lakhs

3. Buy a term insurance

Doesn't matter if you have any liability(Loan) or not it is a good idea to buy term insurance, as premiums offered for the young are much lower.

Experts believe that in an economy like India, where inflation could be higher than developed economies, it is better to have a cover equivalent of 10 to 15 times the annual income plus the outstanding liabilities.

For example, if a person has an annual income of Rs 5 lakh, then the adequate insurance cover would be anywhere between Rs 50 lakh and Rs 75 lakh plus liabilities, if any.

4. Mutual fund SIP

A systematic investment plan instruction can be set up with any fund house by filling up an online form, submitting KYC details, choosing the scheme, amount to be invested each month, date of investment in the month, tenure of the SIP. Each month on the pre-determined date, the amount of SIP is debited from the bank account and invested into the mutual fund scheme.

5. Plan your taxes

A lot of youngsters end up buying inadequate insurance cover or lock in our money in an unnecessary product for a long term in a bid to save taxes. Instead, plan your taxes early by investing in a tax saving product. Why not invest in an Equity Linked Savings Scheme (ELSS) for long term goals – along with good returns, you will get the additional benefit of savings on your taxes.

6. Invest in yourself

Yes, it sounds very generic but we all earn money for ourselves, and investing money in ourselves is the best use of money. Invest money when you want to stay fit, or buy good food, get the book you have been wanting for months. Make sure even you are investing money in yourself, you invest it wisely, but buying or getting the right and healthy things

7. Fixed/Recurring deposit(Optional)

This instrument doesn't generate good returns because of lower interest rates(5-6%) and rising inflation(7-8%). As you are doing this investment with your first salary so there is an assumption that you are either in your early 20's or 30's. So we still have room left to make errors and take risk putting an SIP rather than an FD/RD

Settle off your personal loans/Credit car bills

Conclusion:

First 6 instruments/options are good enough to plan your financial journey. When I got my first salary I had put it all in FD/RD for a long. You can consider I was financially illiterate at that time. So is the reason for this newsletter, to spread awareness and make people financially literate.

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