Just Started Your First Job? Here’s a Primer on Financial Planning

Sep 03, 2018 | 3 months ago | Read Time: 4 minutes | By iKnowledge Team

As hundreds of thousands of college seniors throw their hats into the air this graduation season, a huge fraction of them are gearing up to join the job sector, mostly with entry-level jobs that come with health insurance and a retirement plan. 

With your first paycheck, you will probably buy yourself and your family some gifts, treat your friends and loved ones to celebrate your first job. However, with the second one, you’d do yourself a favour by starting to think about financial planning. Those who are newly experiencing financial independence might wonder, what is financial planning? To keep it brief, it involves making a comprehensive financial plan about all things pertaining to your hard-earned finances. This not only gives you a fruitful opportunity to set yourself up for success, but secures your future in the volatile job market today. According to financial planners and advisors, a regular and steady income makes for good financial decisions especially with regard to three broad areas- health insurance, taxes and retirement.

Health Insurance

Insurance in any form ought to protect you from incurring huge and unaffordable expenses. Even if you think you won’t run up big medical bills anytime soon, health insurance will help cover for large portion of treatments, both in the distant future, as well as in the case of an accident.

And medical help as we all know is expensive. While most firms pay for a part of it, there are also a lot of employers who don’t. The premium and the deductible from your paycheck usually go towards different kinds of medical expenses. So you will be able to choose from several kinds of insurance plans. There are plenty of new plans for the young and healthy but if you have a chronic condition, like asthma or diabetes, make sure your plans cover all visits to the doctor and prescription drugs, especially with those insurance plans which come with an annual or lifetime limit.

Financial Planning

Credit: Unimor Capital

The options may get confusing to choose from but Human Resources personnel are always there to help out so don’t shy away from asking what may be naive questions. You can also check some financial planning tips listed by the experts at Aegon and Aegon’s saving insurance plans for further information on the same.

Financial Plans

Credit: Pixels

Taxes

Unfortunately, a 6LPA annual salary won’t turn out to be anything close to Rs. 50,000 a month, as your  employer will send a portion of it directly to the government for taxes. Although it usually varies, the standard rate in this country is 10% tax deductible at source (TDS), but it does take a huge toll on your saving and investments habits especially when placed alongside your student debt.

So it is better to set a goal to repay the loan, while keeping your monthly expenses in check, within the first few years of getting a job. Getting it out of the way while you’re single and young without a family to support and health liabilities, can help you in two significant ways in the long run. Firstly, your taxes are only going to increase, assuming you do well at your job and receive appraisals and increments at regular intervals. That is the ripe time to begin saving and investing with long term goals in mind, so make sure that taxes plus loan interests don’t put a dent on your savings fund.

Retirement

Depending on how high your student loan bill is, putting away some of your salary for retirement may seem impossible. Vanguard, a mutual fund company, ran a survey that suggested that credit card debt posed a bigger impediment for young professionals under 35. Additionally, high rent can make saving seem daunting as well. So as soon as you’re rid of all the debt, start saving and investing those savings in a disciplined manner, even if it means you’ve only been able to save 5% of your income in a financially stressful month. Eventually, it will have gradually scaled up to 10%, and before no time, you’ll be able to invest 25% of your income!

So set a realistic goal and invest in a savings plan for the long term from an early stage of your career. Invest also in equity. If you’re unsure about any aspect of financial planning, it cannot hurt to bounce your plan off someone who actually thinks about all this for a living. With financial independence, comes great financial responsibility. So make sure you don’t get carried away, which is easy in the midst of all the excitement, confusion and youthfulness.

Advt. no.: II/Jul 2018/4242


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