Managing personal finances include saving and investing your hard-earned income smartly to make it grow in the long-term. One must incorporate these habits as soon as they receive their first paycheck. Travelling the world, buying a house of our own and living a lavish lifestyle is what we all dream. However, all that comes from patience and living a frugal lifestyle. Even if you earn a four-digit income to start with, the more you stay grounded, the better returns you will fetch.
Let us go through some financial habits that you can take on as you get your first earnings.
1. Creating a strict budget
With your first paycheck or the idea of celebrating your first job, you might feel tempted for partying with an expensive bottle of champagne or treating yourself. Even though it is not the best idea. Creating a budget for your income is just as important as sugar is in a cake. Make a list of your daily and monthly expenses and try to reduce spending on each of those items by cutting out on insignificant ones.
Saving at least 40% of your earnings is a good start. Try to retain more if you can by refraining spending unnecessarily. Review your budget regularly so that you can adjust it according to your requirement and earnings.
2.Go for a good savings account
Earning almost no interest in your savings account? Such a waste of time!
Some banks offer savings account interest rates as low as 1.5%, which is not worth it. Your savings account should get you at least the rate of inflation. Compare the policies of different banks and go for the one the gives the best interest rates.
3. Always plan ahead
Where do you see yourself in the next five years?
It could be your further education, wedding, travel, buying a house or family planning. Having a plan for the years to come is essential, even for the smallest events. It is vital for anyone who has just stepped into the financial world to sort their financial plans and ideate their next big move.
4. Invest for benefits in the long term
It is ideal studying about investing or hand over your money to a trusted senior to finance it for you. Seek help from your parents, or elders at home or your workplace to help you get started with your investment journey.
Having a mentor to guide you is crucial as places like the stock market and mutual funds involve a lot of risks, and you might not want to lose out on your hard-earned money. Professional guidance and reading about tips for making financial decisions will be helpful for you in the long run.
5. Filling taxes
It could be difficult for someone new in the financial world to understand the whole concept of taxes. It is foremost to know the basics of taxes like their rates and rebates. If you’re not fluent at finances and have trouble filling them, getting hold of a chartered account, who is experienced in this field can help you get your work done faster. Make sure to claim all the available deductions such as charity, education expenses, etc. that lower your actual taxable income. Always cross-check the math and bank account details. If you fail to file your taxes on time, you can get penalized for the same.
6. Check with employee benefits
Always keep a check with the welfare you receive for working in the company. These may include facilities like medical fees, reimbursement of travel expenses, phone bills and more. It is also essential to know if you are covered with these group insurance schemes. Making use of these benefits help you save a major part of your income.
7. Build up your emergency fund
Imagine having a face a medical or financial emergency and not having the money to pay for it. Take the COVID-19 situation as a significant example of a crisis happening around the world. Along with medical emergencies and job losses, not having money for the extremity that can occur to you along with the emotional trauma that comes with it, is scary. Instead of thinking, “I will handle it when it happens to me”, be prepared for these unforeseen circumstances that come.
8. Utilize your credit carefully
Utilizing credit precisely is an integral part of a good financial scheme. It helps your credit score at your capacity to become large during any big financial purchases. One should always make sure to have cleared their bill payments on time and keep the balance below the limit of the card. While borrowing, you must make sure of your current debt ratio. It should always stay under 30%, or it will act negatively to your credit score.
9. Choosing a suitable rent amount
Housing expenditure is essentially the major portion of any individual’s budget and a very sentimental investment. The search of a choice-able house can allow your accounts to cross beyond its pocket. One should always see its all fixed cost before deciding on how much you are going to pay. During the purchase of a house, you should not perceive the amount you have been approved of as a home loan. The offered amount is in the best interest of the lender and not yours.
You should make sure it does not stiffen your budget or pinch your pocket. Always draw a list as to what you need to have and wish to have, so at the time of decision making you can make a monetarily sound and thoughtful decision. Being real on your need and affordability can help you upfront from laker on stress.
10. Do not spend your bonus cash
With every hike in your salary, save it by putting the money into a savings account instead of spending. It would help you during in emergencies and achieving your goals in the long run. You can use this money to pay off any student loans or debt, or move it into a high yield account.