Getting the first job after so many years of education can feel like a relief. You can now buy and do things that you could not dream about doing with your parents’ money. While it is okay to live a little in the first few months after your first job, but eventually you have to manage your money.
Managing money is one of the first steps in adult life. In this journey, it is better to take professional help you take the right financial decisions.
However, there are a few things that you should look after you join the workforce. Here are six common financial aspects that you can look:
1.Create an Emergency fund
Emergency fund is a must have for everyone. Think of emergency fund as a safety net against life uncertainties such as job loss or minor accident that requires hospitalisation. Emergencies don’t come knocking. Hence, it is important to be prepared, and building an emergency fund is the first vital step.
You should at least have three to six months of expenses in your emergency fund. We all know how much we earn, but most of us don’t have a clear idea on how much we spend.
To have a clear idea of your expenses, you can download your bank’s monthly statement. You can figure out the amount of money that you had spent on your needs and wants. Needs are expenditures that are urgent and timely while wants are expenditures that you can postpone with no adverse impact.
Whether you want to create a bare essential emergency fund i.e. based on your needs or overall expenditures (needs + wants), you can accordingly build your emergency fund.
You can skip your investments to build your emergency fund. However, if you have an existing loan or pay monthly premiums on a term insurance, you can add the amount to the emergency fund.
Savings account and liquid fund are two options used to create an emergency fund.
2.Take a term insurance
Term insurance is another essential financial product. Term insurance is a life insurance product. Insurers pay premium on a pre-defined basis to cover life risks.
Term insurance makes sure that your dependents don’t have to suffer financially and continue to maintain the current standard of living. Term insurance will also help your loved ones to fulfil their financial goals after an unfortunate event.
One of the advantage of term insurance is that insurance premium remains the same throughout the tenure. Hence, buying a term insurance plan early can help you save a lot on premiums.
3.Have a health insurance
Healthcare is expensive. In the last few years, healthcare inflation has been higher than general inflation. With the raising health care cost, hospital treatments can wipe out your entire savings and leave you in debt. While your employer may provide mediclaim facilities, it is important to have a standalone health insurance.
4. Make a budget
Budget is the backbone of your finances. Having a budget means deciding a compartment of every single rupee.
One of the budget thumb rules in budgeting is the 50-30-20 rule. According to this thumb rule, you can allocate 50% of your income for your needs, 30% for wants and 20% towards savings and investment.
Rent, utility bills, grocery bills, EMIs fall under needs, eating out and travelling are wants and contributions to EPF, mutual fund investments and deposits constitutes savings and investments.
5.Read about money and investment options
Before you invest through an online platform or hire a financial advisor, read up on various financial concepts and products. This will help you understand the different nuances of money, and other investment options.
If you are interested in equities, Varsity by Zerodha will help you understand the equity markets. Rich Dad Poor Dad is a good book for begineers.
6.Know your financial goals
After your first job, you may want to do a lot of things. However, after some months, it is important to know your financial goals. Financial goals give purpose to our savings and investments. Once you figure out your financial goals, you can plan your investments accordingly. In case of investing, knowing the ‘why’ is important than ‘how’.
If you have worked for weeks or months, managing your financial life should be a priority. Devote a few weekends to brush your financial knowledge, figuring out your financial goals and choosing the right investment and saving options. It may sound boring but will benefit you in the long run.