During the early days of employment, fresh graduates witness a steady inflow of money and since there are less liabilities at that point of time, they end up splurging their entire earnings! Financial planning right from the beginning of your career is highly important if you do not wish to be left empty handed when you need finances the most. Here are three basic steps that you need to follow to ensure you’re backed up with savings, when the real liabilities come into picture.
Set a Savings Budget
Generally, when month end is reached and salary is credited, we pay for the mandatory expenses like rent, internet, EMIs, credit card bills etc., and also spend on lifestyle related needs. The remaining (if any!) would be our savings. Sometimes even that is not channelled correctly. In such cases, the best practice is to keep a Savings and Investment Budget in place. In layman terms, from the salary you take home, set aside a predefined amount as savings without fail and then spend for other expenses.
Here the key is (in the initial days) not how much you save, but starting the savings habit and making it a consistent practice even if it means starting with just 1 percent of your income then gradually increasing it to 5-10 percent. Eventually, over a period of time, your savings should be at least 25 percent of your income and this will eventually pay you back for fulfilling your dreams.
One thing to keep in mind is that one has to frame his/her financial goals prior to investing, and that is because different people will have different concepts about money; for some it will mean security, for some it will mean fulfilling their travel goals, higher education goals of children etc. As a common practice, what is seen is that people are good when it comes to savings but fail when it comes to investing. One easy way to sort this situation is to jot down the reasons why money is important to you and prioritize the reasons why money is important.
Once this idea is cleared, next will be to understand the tangible goals for which money backing is required, and, for this, start defining your goals and start quantifying them in terms of the time you’ll need to achieve them and amount you need to set aside etc. Most of you might not be clear with your long-term goals, but we insist you give it a serious thought.
Start Saving Early
When it comes to money matters, quick fixes is what we all look for and hence we find ways to get huge returns in the shortest possible time period, which more often than not results in complete disaster! Therefore the thumb rule to be kept in mind, start saving early, regularly and in a disciplined manner. Starting early will give you an edge over others and also the return will be large for your long-term goals. On the contrary, if you start saving late, the pressure on saving will be more and one has to save huge amounts on a per month basis which will create an extra burden. In the case of savings, “the early bird catches the worm” is really apt.
Most of the time, fresh graduates never really give a thought towards financial planning either because their life revolves just around “living today” or tomorrow is quite far. Don’t fall for this trap and start wisely, today, for a better future.