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Most of the youngsters feel that landing a swanky job with a decent salary is winning the battle in life. On the contrary, it’s just the opposite because all that your job provides is a window to make your future bright by resorting to some intelligent financial planning. However, a common problem usually faced by all the youngsters is they don’t know from where to begin or are ignorant about how they can go about planning in the right direction. Please note that you do not have to be a wizard to develop a road map and few simple steps can potentially take you a long way in securing a better future for yourself and your family.
1. Begin Financial Planning With Your First Job
The financial independence that you get with your first job is immense. All of a sudden your status is elevated and you have the dough in your pocket. What do you do? The natural tendency is to go on a spending spree and have a good time. Since it’s your first job, it’s completely understandable. However, it’s not the right way to go about it. The life has just begun and you have a long walk ahead. Have fun but make it a point to save whatever you can. The amount you decide to save is insignificant at this moment, but in the long run it will discipline you. If nothing, open a recurring deposit account.
2. Invest in a: Term Plan, Personal Accident Cover and Health Insurance
The above mentioned are ‘Must Have’ products in your investment portfolio. People generally don’t buy them thinking that they are very expensive. On the contrary, starting young will help you save on premium as they are less. If you are in your 20s compared to those who are in 30s or 40s.
|Age at time of investing (In Years)||25||30|
|Cover (In Rs)||1 Crore||1 Crore|
|Duration (In years)||20||20|
|Annual Premium (In Rs)||6,287||6,853|
|Annual Saving (In Rs)||566|
Start early to save more!
3. Use Your Credit Card Cautiously
Getting a credit card is considered to be the beginning of most financial disasters. You splurge on things you generally don’t want or wouldn’t have purchased otherwise and are left with fat bills. The end result is being stuck with making minimum payments or not paying at all. It is strongly suggested that you control your urge and use the credit card cautiously. Remember, it’s not a freebie that has been offered to you. Sooner or later you will have to pay and the interest rate charged on credit card is as high as 24%?36% annually.
4. Make a ‘rainy’ day Fund
Be prepared for the unexpected and make a ‘rainy day’ fund. Life is highly unpredictable and anything can happen. Consider the scenarios, what if you lose your job? Or your company is going through a tough phase and is unable to pay you on time. In such a situation, you will end up defaulting on your repayments, which will not only effect your CIBIL score but also cause immense emotional stress and trauma. Therefore, it’s necessary to build a cash reserve that will help you sustain for a minimum of 3-months, if something unforeseen happens. Breaking your FD’s or other policies is not a good idea, they are investments for mid-life and post-retirement living and not to be used during temporary crisis.
5. Prepay Your Education Loan and Other Debts:
It is likely that you have a student loan to repay, especially if you have studied abroad or have accumulated other forms of debt. It’s important to organize your debts according to the interest rates levied on them and start repaying. It is meaningful to partly prepay your loans as you will save on your interest outgo.
Illustration: If you have an education loan of Rs. 12lakh @ 10.25% to be repaid in 5 years, the EMI will be Rs. 25,644. The total outgo towards your loan repayment will be Rs. 15, 62,659. However, if you add a meagre sum of Rs. 1,000 to your EMI after the first year, you will be able to save Rs. 10,700 and finish your repayment 2 months earlier than scheduled.
The key to financial planning is to reduce as much debt as possible, so that you have more cash to invest in long-term plans, which will pay huge dividends 20 years down the road. Following these steps will help you lead a spectacular life.