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Personal Finance
The Times of India
Put in place financial plan right from first job
The very first job in any person's life is usually a cause for
celebration. Besides that, however, it also marks a phase of transition
from dependency to independence in terms of the person's own finances.
And with the job comes increased responsibilities. But today's youth
also have high aspirations and are often found to be in a hurry to
achieve their life's goals.
Given their responsibilities — which are expected to only increase as they grow in life — and their aspirations, there should be a balance so that at least financially they lead a better life in the future. Towards this end they need to put in place a financial plan soon after they join their first job, according to financial planners and advisers. So, how can first-time salaried people make a financial plan?
Get insured
Financial planners and advisers say, given the high rate of increase in the prices of medical care, one of the first things a first-time salaried person should do is to take up a mediclaim/health insurance policy. And it is suggested that such a policy is taken for the whole family on a floater basis.
Part of the premium paid for such policies, under certain conditions, also qualifies for tax deductions. And this policy should be in addition to the mediclaim/health insurance cover that your company may offer.
This is important because often, when you change jobs and even if your next employer gives you a healthcare policy, there is a cooling-off period before you are covered under the policy offered by the new company. Also, take a pure term life policy. Since you are young, you can get insured for a large sum but at a low cost.
You can afford risks
The next step is to realise that since you are willing to start investing early in life, you have a host of advantages on your side: You can take extra risks by investing a higher portion in equities, and since time is on your side and hence the power of compounding too, you can learn from your investing mistakes .
"One should start building a portfolio of large-, mid- and small-cap stocks through monthly investments," says Rashmi Roddam, director, WealthRays group. "If you are a stock investor already, then increase your investments and maintain a portfolio for short-, medium- and long-term goals. Look for multi-baggers or dividendpaying companies and stay invested for a long term," adds Roddam.
Financial planners and advisers say one should settle for systematic investment plans (SIPs) for investing in both equities and debt. "Take advantage of systematic investment by investing in stocks in small installments. Start an SIP for both equity and debt funds in order to enjoy benefits of stock market and interest rate fluctuations . Move your salary to a liquid fund that fetches returns of around 8%, which is certainly better than a savings account," says Roddam. Save tax, build an emergency fund Within the MF fold, you could also look at the taxsaving instruments, that is e q u i t y - l i n ke d s av i n g s schemes (ELSSs). Outside of the MF fold, there are other tax-saving investment options too, like provident fund, PPF, etc, which are approved by the income tax authorities. You can also opt for the National Pension Scheme ( NPS) that offers both — long-term savings and wealth creation options. And if the same is offered through your employer, you can save some additional taxes too.
Financial advisers also suggest that one should look at building an emergency fund to take care of unforeseen expenses at short notice . Also, if you have some extra money that you know you won't need in, say twothree weeks or a month, you can put that in a liquid fund which not only gives higher returns than savings accounts, but also offer better tax efficiency.
Given their responsibilities — which are expected to only increase as they grow in life — and their aspirations, there should be a balance so that at least financially they lead a better life in the future. Towards this end they need to put in place a financial plan soon after they join their first job, according to financial planners and advisers. So, how can first-time salaried people make a financial plan?
Get insured
Financial planners and advisers say, given the high rate of increase in the prices of medical care, one of the first things a first-time salaried person should do is to take up a mediclaim/health insurance policy. And it is suggested that such a policy is taken for the whole family on a floater basis.
Part of the premium paid for such policies, under certain conditions, also qualifies for tax deductions. And this policy should be in addition to the mediclaim/health insurance cover that your company may offer.
This is important because often, when you change jobs and even if your next employer gives you a healthcare policy, there is a cooling-off period before you are covered under the policy offered by the new company. Also, take a pure term life policy. Since you are young, you can get insured for a large sum but at a low cost.
You can afford risks
The next step is to realise that since you are willing to start investing early in life, you have a host of advantages on your side: You can take extra risks by investing a higher portion in equities, and since time is on your side and hence the power of compounding too, you can learn from your investing mistakes .
"One should start building a portfolio of large-, mid- and small-cap stocks through monthly investments," says Rashmi Roddam, director, WealthRays group. "If you are a stock investor already, then increase your investments and maintain a portfolio for short-, medium- and long-term goals. Look for multi-baggers or dividendpaying companies and stay invested for a long term," adds Roddam.
Financial planners and advisers say one should settle for systematic investment plans (SIPs) for investing in both equities and debt. "Take advantage of systematic investment by investing in stocks in small installments. Start an SIP for both equity and debt funds in order to enjoy benefits of stock market and interest rate fluctuations . Move your salary to a liquid fund that fetches returns of around 8%, which is certainly better than a savings account," says Roddam. Save tax, build an emergency fund Within the MF fold, you could also look at the taxsaving instruments, that is e q u i t y - l i n ke d s av i n g s schemes (ELSSs). Outside of the MF fold, there are other tax-saving investment options too, like provident fund, PPF, etc, which are approved by the income tax authorities. You can also opt for the National Pension Scheme ( NPS) that offers both — long-term savings and wealth creation options. And if the same is offered through your employer, you can save some additional taxes too.
Financial advisers also suggest that one should look at building an emergency fund to take care of unforeseen expenses at short notice . Also, if you have some extra money that you know you won't need in, say twothree weeks or a month, you can put that in a liquid fund which not only gives higher returns than savings accounts, but also offer better tax efficiency.
vijay kr yadav
pgdm sem-1
sou- times of india
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