The first salary is a beautiful feeling. It is like a dream come true. But, you get a different feel when you start earning your money. But, due to a lack of awareness of financial planning, many people are clueless about managing money.
According to the study, more than half the people who earn a monthly salary live paycheck to paycheck without any emergency fund. However, earning money is not just enough. You must also make your money work for you. In this blog, we will guide first-time salary earners on how to manage their finances.
Financial planning for the first-time salary earners
- Create a monthly budget: the first step of financial planning is making a budget. You can’t have financial discipline without maintaining a budget. So, you should create a monthly budget and stick to it. Creating a budget and sticking to it will ensure you don’t overspend and save a certain amount each month. The budget is created by noting down the monthly income and expenditure. While you make a budget, make sure your expenditure is not more than 60% of your income.
- Learn to save: Saving is an essential step in financial planning. You must not save what is left after spending; instead, you must spend what is left after saving. You should always set aside at least 20% of your income to invest in financial instruments which reap long-term benefits. Keeping should be a part of your financial routine, and you must never miss saving each month.
- Create an emergency fund: Life is uncertain, and you never know what tomorrow brings. So, it is imperative to build an emergency fund. An emergency fund makes sure that you have money for emergencies. You must have at least three months of salary in your emergency fund if you are single. It’s six months if you are married.
- Know about basic taxes: You might find tax planning difficult. But, it is essential to know about taxes, income tax deductions and exemptions, government tax saving schemes, etc. Basic knowledge of taxes will help save tax through various deductions, and also you can structure your salary to enjoy maximum benefits.
- Pay off your education loan: If you have availed of an education loan for higher studies, you must pay it off from the first salary itself. Even though an education loan is a good loan, its repayment should be your priority. The interest you pay on your loan is a real burden
- Buy the required insurance: Availing of both health and term insurance at a young age reduces the premium. But, don’t buy term insurance at an early age if you don’t have dependents, just to lock on to low premiums. On the other hand, availing of health insurance as early as possible is very important. You must do proper research and help yourself with the health insurance policy which meets your long-term health needs.
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