If you are intent on turning your money into assets, then you need to start planning. Here are eight tips to help young earners such as yourself:
1. In financial planning, it is vital to take stock of your finances, and when you’re a young earner, this can seem like a Herculean task. To help identify your goals and make a budget, you can chalk out your expenses and learn to be a smart spender. Maintain records of your costs and manage it appropriately.
2. As a general rule, don’t touch credit cards until you’ve saved enough. Defaulting on a credit card is costly, and sometimes repayment can take years. Late fees and interest charges will be the bulk of your repayment. Stick to debit cards if a card is your preferred mode of payment.
3. When you maintain records, you may notice that your income is over-taxed. Plan your tax savings carefully. Find ways you can reduce your taxable income and invest in avenues that allow tax exemptions. EPF, PPF, NPS, 5-year tax-saving fixed deposits, ELSS, Ulips and life insurance schemes are some of the financial instruments to save on tax.
4. Invest 5% of your income in recurring deposits. A meaningful recurring deposit should be at least three years long. As a young earner, excess cash can go down the drain in wastage. Accounting for this pre-hand and investing in recurring deposits is your best bet. The great thing about this is that it is not complicated. It is as simple as it can get to bring considerable savings.
5. When you’ve been in your company for at least three years, you would have decided if you’ll be staying for an extended period or not. If you are, you can start investing in their shares. See if your company shares trade publically. It is the safest share because you would be more aware of your company’s financials better than someone outside the company.
6. Don’t be a miser. Don’t buy products just because they’re cheap. Invest in those that may be expensive but would avoid accumulating recurring costs either by having to replace specific parts or the whole product. A high-end product, if chosen carefully, can mean fewer maintenance costs.
7. Invest 5% in skill development activities. This investment may be the most crucial one you’ll make. When you invest in skill-building, it puts you in a position to advance in your career, thereby subsequently climbing up the financial ladder. Don’t choose those that don’t fit your interests and aptitude. Integrate skill development with leisure.
8. Account for emergencies. Identify areas of risk in your life and find an appropriate insurance plan and keep yourself insured. There are many premiums to choose even in a single insurance plan, so do your research and speak with insurance consultants before making purchases of a policy.