Don’t Let Your Money Be Footloose And Fancy Free

Earning your first salary is undiluted pleasure. It is all too easy to get soaked in its headiness and go a bit haywire in your expenses. However, this is a curial period of your life to build it financially. Decisions made in these initial years will affect your financial status throughout the life.

So if you are young and have just started earning, here is some important money advice that will serve you well for life.

1. Start with a small fixed saving every month
When we first start earning, money always seems short. We are perpetually overdrawing from a credit card or waiting for the next salary to come in. Even so, it is essential to start saving early. Even a small amount grows fast if invested early, much faster than a larger amount invested a few years later. The power of compounding helps money grow in multiples over a longer period of time. To ensure that there is a compulsory saving, invest in an instrument like Systematic Investment Plan (SIP) or a recurring deposit, and instruct your bank to directly debit your account at the beginning of the month.

2. Start building yourCibil credit score
Your borrowing and repayments is what builds up your credit score. Borrowing could be spending on a credit card or taking an EMI loan for a car or even a home loan. Importantly, the loans need to be repaid on time to build a positive credit score. Also avoid spending more than 30% of your credit limits. Maxing out on the credit cards will bring down your credit score. At this stage of life, building a good Cibil credit score is of paramount importance as you will soon be in the market for the all important home loan, and a good Cibil credit score can make all the difference.

3. Buy insurance
For most Indians, insurance is a source of investment. Insurance,however should be used only to cover risk. Buy a term policy that is easy on the pocket and serves the purpose of giving you risk cover. The remaining amount must be invested in other areas.

4. Take advantage of the benefits offered by your company
Many company offer reimbursements for health-related expenses. They also help you to structure your salary in the most tax-effective manner. Some companies may also offer group life insurance and medical insurance, where the rates work out to be much cheaper. Become friends with the people in human resources and take advantage of what the company has to offer its employees.

5. Pay attention to taxes
The government of India gives its citizen excellent opportunities to save tax along with encouraging investments. You can get exception under sector 80 C upto Rs 1 lakh in taxes every year by simply investing in your Provident Fund account or paying your life insurance premium etc. Also do file your tax returns on time to avoid the heavy penalties.

6. Make a career plan
It is essential to make a career continuity plan. You may have joined a firm as a graduate, but to move ahead an advanced degree is needed. A rough plan must be chalked out. For instance, you might want to study for an MBA degree in 2 years time. So you need to plan out the source of finance to pursue the course along with living expenses for that period. An education loan can be taken, but to avail that loan you must have a good Cibil credit score. It is a full circle which comes back to prudent spending and investments.

Image: thinkstock

About the author: Rajiv Raj is the director and co-founder ofwww.creditvidya.com.