The young entrepreneurs and the fresher in the private job sector think a decent salary and income in five- six digits per month is good enough for a good life ahead. This is true to an extent but not completely. The rate of inflation moves much faster than the rate of income and growth. With growing age, comes the responsibility.
There are various factors that should be kept in mind while starting one’s financial planning and investments for a better future like when should one be getting married, what all he or she needs to have before stepping up towards a threshold in life wherein responsibilities should come along, as along with marriage follows the vacations and childbirth. The finances planned at an early age are a great support to one’s promising and a happy future. When one incepts in Job or business at an early age he or she has very limited or no liability in most of the cases because parents and elder siblings are already earning or are well settled not to immediately burden the entire expenditure on the fresh earning hands.
The funds to be managed well should be mostly divided into four parts to start with.
1. Disposable Fund (monthly expenditures)
This should be at the maximum capped to 30% of the monthly net income, the regular expenditure on self and family members should be tried to be maintained within this slab. This should be kept low and one should try to put the savings even from these aside as a form of regular savings.
2. Capital /Assets
This fund should be saved in form of cash savings, gold, property or bonds which can be immediately liquidated if needed. Alternatively this set aside fund should be invested in land and property at initial stage and this can be rolled in future for various asset formations. This should be roughly around 20% of the net Income.
3. Fixed Term Investments or Insurance
This should be between 30-35 percent of the income. And of course the taxation slabs should be maintained. If required the capital or asset funds should b clubbed here.
Various forms of Investments and savings offers are available these days Fixed deposits with banks, recurring deposits with banks , Unit Linked Funds or Mutual funds with various financial and insurance sector. General and Life Insurance which is pure insurance available under IRDA etc. are just a few options out of many available today.
Beginners should start investing in Term Policy for Life Insurance. The less the age of entry is, the lower is the premium amount and of course a high risk coverage. They offer a limited time payment or one-time payment (Short Term Pay) offers for a longer term of life coverage. Those should be preferred over continuous payment policies. (Long Term Pay)
Pension Plans should also be taken at an early age as this ensures better benefits after attaining retirement. A well planned retirement is the need of an hour as there are more nuclear families without much support in the old age.
Mutual funds, in form of Systematic Investment Plans (SIP), at an early age are advisable as they allow a small investment every month and a chance to study the market variables in a better way.
The money to be invested should be distributed in such a way that there is proper distribution in endowment and money-back policies. And this should be planned according to the need for bulk money during future plans like marriages, childbirths or foreign tours.
One should keep a distance from risking into open stock market, bullion market and commodity market before being educated about the market risks and other factors.
4. Contingency Fund/ Emergency Reserve Fund
A fixed part of savings close to 15 % should be kept aside untouched for emergency cases. One never knows when can an emergency situation arise? Sudden death of a family member, accidents, medical emergencies, sudden business loss, natural calamities are different forms of contingencies that may arise in life out of nowhere as a bolt from the blue. This fund is a savior in such cases. This should be left untouched however lucrative it might look to take it out and spend somewhere else.
Taking a loan or credits on the cards or overdrafts should be the last thing on mind and should be strictly avoided unless and until extremely necessary with no other available options however lucrative the offers may appear. Taking a loan from accredit card is also as good as getting trapped in a vicious circle of the local money lenders so it should be avoided till needed actually.
It is always good not to be dependent upon anyone for financial needs so the better the funds are planned at an early age the better and promising the future would be. One should not just spend wisely but also save wisely. As today’s savings are the earnings for tomorrow.
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