The very first job in any person’s life is usually a cause for celebra- tion. Besides that, however, it also marks a phase of transition from dependency to inde- pendence in terms of the person’s own finances. And with the job comes increased responsibilities. But today’s youth also have high aspira- tions and are often found to be in a hurry to achieve their life’s goals.
Given their responsibili- ties — which are expected to only increase as they grow in life — and their aspira- tions, there should be a bal- ance so that at least finan- cially they lead a better life in the future.
Towards this end they need to put in place a finan- cial plan soon after they join their first job, according to financial planners and advisers. So, how can first-time salaried people make a fi- nancial plan?
Financial planners and ad- visers 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 insur- ance policy. And it is sug- gested that such a policy is taken for the whole family on a floater basis.
Part of the premium paid for such policies, under cer- tain conditions, also quali- fies for tax deductions. And this policy should be in addi- tion 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 em- ployer 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 advan- tages 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 com- pounding too, you can learn from your investing mis- takes.
“One should start build- ing 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 invest- ments and maintain a port- folio for short-, medium- and long-term goals. Look for multi-baggers or dividend- paying companies and stay invested for a long term,” adds Roddam.
Financial planners and advisers say one should set- tle for Systematic Investment Plans (SIPs) for investing in both equities and debt. “Take advantage of systematic in- vestment by investing in stocks in small installments. Start an SIP for both equity and debt funds in order to enjoy benefits of stock mar- ket and interest rate fluctua- tions. Move your salary to a liquid fund that fetches re- turns of around 8%, which is certainly better than a sav- ings account,” says Roddam.
Save tax, build an emergency fund
Within the MF fold, you could also look at the tax- saving instruments, that is equity-linked savings schemes (ELSSs). Outside of the MF fold, there are other tax-saving investment op- tions too, like provident fund, PPF, etc, which are ap- proved 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 unfore- seen expenses at short no- tice. Also, if you have some extra money that you know you won’t need in, say two- three weeks or a month, you can put that in a liquid fund which not only gives higher returns than savings ac- counts, but also offer better tax efficiency.