Financial Planning for The Young : Part 1

Most people advise you to have a plan to save and invest for the future. When starting out your career, it feels very impractical. A plan for what future? When one doesn’t know the plan for the weekend, it seems overwhelming and absurd to plan for the future.

How do we start financial planning?

Problems of this nature are best solved by breaking them into small chunks. Assign the first goal as something tangible and logical like ending the month with fewer expenses and expenditure than your monthly earnings. This makes most people roll their eyes. To make your financial dreams a reality, you need to take account of where the money is going.

Track your expenses: Advice for Millennials

This month try to make all your payments using one or two apps. Forego the cashback if that is what it takes to consolidate all the transactions into those two apps. If you are forced to make some payments in cash, write them down. At the end of the month, use the transactions page of the apps to make a note of all the expenses. There are some apps for personal finance management that can also use the SMS data in your mobile to track all your expenses. But even they will require you to make notes if some transactions don’t get registered through an SMS. At the end of the first month, you will now know where the money is spent. If it is more than what you earn it is time to reduce expenses.

What if you find out that you spend more than you earn?

There is always a way to reduce expenses. Don’t eat out every day, forego the expensive latte, use a carpool, consume less electricity. Yes, take a loan if there are emergencies or unexpected occasions. But then it is your responsibility to make up for that additional spend by further cutting down expenses. Studies say that if you declare your goal to someone it makes you more committed. Share this goal with someone you trust. Give them updates. Celebrate days when you found ways to save extra.

Have you thought if there are ways to increase your earnings?

See if you can have a professional and constructive conversation with your manager to set goals that will make you eligible for a pay raise. Explore additional training avenues that increase your personal market value. Freelancing is on the rise. Without compromising your current job, you could do something on the side.

I hope with these actions you can manage to save something every month. There are so many avenues to invest these hard-earned savings. Work towards building a corpus of funds in a fixed deposit available online on Bajaj Markets or another instrument that provides tax-saving options like National Pension Scheme (NPS). If you have to look for a job, assess the time it will take you to land a new job at the same salary. Your corpus should be at a minimum equal to your monthly expenses multiplied with the time to land a new job. To be safe, have some financial cushion. This rainy-day corpus is the very first step.

Now that you have a plan, we will pick up on the next step of securing an insurance policy in the next blog.

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