6 Money Tips for Young Earners
Young earners should take on the following tips in order to take better control of money and their finances:-
1] Make a Budget & Start Saving –
Budgeting is a simple task of comparing the income with the expenses, and this must be your initial step. Make a note of your monthly expenses. The objective is to find out how much you spend under different heads. Tracking of budget is important not only to identify mandatory and optional spends, but also ensure that you don’t overspend.
Once you’ve identified the outgoing amount, put away 20-30% of your salary every month before you start spending. If you don’t know where to put it, start with your bank account. This will help inculcate a lifelong saving habit and make sure that you money starts to work for you immediately.
2] Define your Financial Goals –
Now, you’ve started saving, but will it be enough to reach your goals. People have a tendency to save aggressively and then invest with extreme drive, but they do so blindly, harming their financial goals. It is a mistake which is common to most investors, regardless of the age group. Make sure to define your financial goals and make way for achieving them.
Don’t just make a mental note of the things you want to finance, but write these down in detail. Split your goals into three categories: short-, medium- and long-term goals. Then list each one clearly, along with the number of years to achieve each, and the exact amount you will need. Once you have written down your goals, you will be able to determine how much and for how long you will need to invest.
3] Take a Term Insurance Plan –
There are several types of insurances in the market. Term Insurance Plans are such insurance products. Term insurance policies offer guarantee returns to the policyholder at the time of maturity. So, assess your needs before you choose the right insurance policy.
4] Maximise your Tax Savings through Salary Re-structuring –
Tax savings is not the main concern for most of the new earners as their salaries may not be too high, nor their knowledge with respect to taxability of various instruments. It is advisable not be obsessive with investing for the purpose of saving tax.
You can save tax by negotiating with your employer for a tax friendly salary structure. The basic, probably the chunk of your salary, includes basic pay, HRA and often dearness allowance (DA) and special allowance. Apart from HRA, every component is fully taxable. An easy way to reduce tax liability is to cut basic pay and adjust it as perks or long-term benefits. If you have a special allowance component, adjust it as a tax-free component.
5] Build an Emergency Fund –
The new earners typically forget the preparation for financial emergencies. Be it the sudden loss of job, medical emergency or sudden financial support required by a family member, you will need to be ready for contingencies. So the first thing to do, even before you start saving for smaller, short-term goals, is to build an emergency corpus. The best and the easiest way of achieving this is by automatically divert some portion of the earnings into a bank savings account.
Emergency fund should be equal to 3-6 months of your household expenses, and should also include any loan repayments and insurance premium obligations. This amount should be invested in such an instrument that it is easily accessible and is not subject to market fluctuations.
6] Avoid taking Personal Loan –
Given the ease of securing a personal loan with pre-approved amounts, it is easy to give in to the urge. Know that personal loan is one of the most expensive forms of loan after credit cards and charges very high interest. Avoid these at all cost.