10 financial rules young earners must abide by
With money comes
responsibility. Developing good money skills also requires regular practice
Young earners are always excited about drawing an
income. The joy of being able to spend as one wishes, camouflages the
responsibilities that come with adult life. It takes time to develop the right
attitudes towards money, and this skill gets better only with practice.
Here
are a few tips to help along the way.
Begin with your bank account.
Make sure you have one
core account that receives your salary income and can be used to establish your
financial status easily. You will need a verifiable proof that your income is
steady and growing with time. Keep the bank account as a record of your
financial life.
Second, organise and tabulate your expenses as a
percentage of your income. Your rent, utility bills, travel expenses and the
basic costs that you have to incur month on month are mandatory expenses.
Ideally, your mandatory expenses should not be over 60% of your income. The
remaining 40% should be allocated to saving and to discretionary expenses.
Third, keep borrowing at bay until you have reached a
level of comfort with earning and spending, and are able to see a positive
balance in your bank account before the next salary hits it. Even if your bank
is willing to offer you a credit card, use a debit card until you have a steady
surplus in your bank account.
Fourth, the responsibility for your credit history is
completely yours. If you have an educational loan, prioritise the repayment. Do
not default on the educational loan, take help from family if necessary. Loans
leave a track record, and poor credit score can hurt you later.
Fifth, make saving your default option. You can’t
just assume that you will save whatever remains after spending. Begin small. It
could be a small contribution to your PPF account; or an SIP with a mutual
fund. Make contributions to these savings beforehand and spend whatever is left
after saving.
Sixth, recognise your need for funds to meet
unexpected events. Have a small stash in the form of a bank fixed deposit. Take
a loan against that deposit, so you are compelled to repay it, rather than
liquidate it. It will take time to plan and forecast your needs, and financial
management is a skill learned with time.
Seventh, avoid committing to large payments that seem
like a smart idea to build a compulsory saving habit. Two commonly committed
mistakes here are the EMI for a house and the premium for an insurance policy.
As most young earners switch several jobs in the initial years, EMIs can harm
flexibilities seriously. Likewise, don’t overdo the insurance to find out later
that the committed premium is too high to pay.
Eighth, do not be lured into trading in stocks,
futures or options and needless to add, do not subscribe to any methods of
making a quick buck. Learn how the world of investment works. There is enough
money to be made by the diligent saver and investor.
Ninth, make sure your financial records are in
impeccable order. The taxman is only concerned about your sources of income,
and whether your assets match those declared incomes. Do not fall into the trap
of assuming that paying taxes is naïve.
Tenth, focus on the rate of growth in your income.
That number will matter more than the rate of return on your investments. You
have to invest in yourself if you find that you are falling short. Allocate
finances to achieve that as a priority. It is your income that enables your
financial life, ensure it is not at risk.
The author is Chairperson of The
Centre for Investment Education and Learning
Uma Shashikant
TOI 27AUG18
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