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HindustanTimes Fri,19 Sep 2014

How to make best use of your initial salaries

Vivina Vishwanathan , Hindustan Times   March 29, 2014
First Published: 01:54 IST(29/3/2014) | Last Updated: 01:56 IST(29/3/2014)

Life changes once you start earning. There's money in hand, but also more responsibilities. Financial planners say you should start investing as early as possible. Here are seven things you must do with your first few salaries:

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Pay off education loan
Many of you who are just out of college may have education loans to take care of. This should be your first target, and start paying off this loan using money from your first salary itself so that you can close the debt as soon as possible. "You also get a tax benefit on education loan under section 80E of the Income tax Act," said Surya Bhatia, a financial planner. 

Keep track of expenses
With income comes expenses. This could be rent, phone bills, EMIs, and many more. It's important to keep a track of these. The simplest thing to do is write down whatever you spend in a notebook or on an excel sheet. Keeping a record will tell you what you spend on, how much and how often — it's an analysis and the best way to find out where you are going overboard.

Study financial products
This is one kind of study that will stay with your throughout your life. After expenses, whatever surplus remains should be invested and saved. Now that you are on a threshold, it's best to get familiar with financial products. "You don't have to get in touch with any financial planner. You can find the basics of investments on Internet, financial blogs or books and newspapers," said Suresh Sadagopan, a Mumbai-based financial planner.

Considering that people who have just started earning are very young, their risk appetite will be high. Hence, you can look at investing aggressively. "But there is another argument that people so young lack experience. So you need to understand your risk appetite first," said Srikanth Meenakshi, co-founder, Fundsindia.com. Questionnaires to help you along are readily available on many financial portals.

Save for small goals
Just because it may be some time before you are able to understand products doesn't mean that you can't start saving. Start immediately with whatever you have. Saving for small goals like buying a laptop, camera, mobile phone or a vacation, will automatically put you into the habit.

Avoid getting into a debt trap. "If you want to buy something, start saving for it. Don't buy with a credit card or with EMIs as it is very easy to get into a debt trap," said Anil Rego, a financial planner.

You can start investing in liquid mutual funds for short-term goals. If you are in the lowest tax bracket, you can start with recurring deposits to get into the habit of saving.

Buy an insurance plan
Firstly, you need to understand what insurance means. Insurance helps you protect your assets in case of unforeseen events. Say, your parents are financially dependent on you; then you should take a life insurance policy. Go for a term plan — it gives high cover at a low price as it only pays your nominees in case of your death, and doesn't return any money if you survive the policy. Buying a term plan online makes it even cheaper. The premium you pay qualifies for tax benefit under section 80C.

If you don't have any dependants, you don't have to bother about a life insurance policy right now. But you should definitely look for health insurance. "You should consider taking at least a Rs. 3 lakh health cover. This won't cost more than Rs. 4,000 per annum," said Sadagopan. And, again, there is a tax incentive on this up to Rs. 15,000 under section 80D of the I-T Act.

Keep 10% for long-term
You may be 20 or 21 or 25 years old today. But you will be 60 or 70 after what seems like many years. So, you will need a retirement corpus to survive the years that you will not be working. To build this corpus, you need to keep aside at least 10% of your income in your 20s itself to achieve this goal. You can start with simple products such as Employees' Provident Fund and Public Provident Fund.

Reward yourself
Of course, you have to be responsible and handle money judiciously. But this doesn't mean you can't have fun. Pamper yourself whenever you reach a goal or have extra money to splurge.


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