Six Things To Do When You Get a Job

You’re in your early 20s. You’ve just finished college and have started working in a job. Money! Your own money!

It’s tempting to blow up your salary on a fancy motorcycle or scooter, expensive clothes, watches, phones, jewellery and parties. Sure, satisfy these desires, but to a limited extent. You’re not a sanyasi!

Early in your career, you’ll get plenty of advice from your relatives and friends, whether you ask for it or not. Some will say, “Buy a life insurance policy. It’s the best investment.” Others will suggest that you pay off an educational loan or buy shares or save up to buy an apartment. The list is endless.

Here are six things you should do.

This is the first thing you should do. Save 2-3 months of your salary for emergencies and keep this in a bank where you can access it immediately (not in fixed deposits. Flexi deposits are ok). Save a portion of your salary every month to build this fund. Do not keep this money at home. You’ll be tempted to spend it.

Unless you are from a super rich family, you should buy an insurance policy early in life. Insurance agents may suggest endowment policies, especially those that offer a money-back option. Stay away from these!  A simple term insurance is enough. You will not get any money at the end of the period with term insurance, but your life will be insured. After all, you are buying insurance so that your loved ones do not suffer if something untoward happens to you.

Buying the term insurance when you are young has an advantage: the premium will be less than if you are 10-15 years older. The premium for women is also lesser than for men.

Why not endowment policies? For one, the return from endowment policies does not even set off inflation. So, it’s not a good investment option.

Let’s say you are a 25-year-old male. A term insurance policy for 50 lakhs for 30 years will cost only Rs.4,900 every year (if you’re female you need to pay Rs 4,800). On the other hand, if it’s an endowment policy for a cover of Rs 10 lakhs and the same time frame, it will cost you Rs 28,660 rupees every year! Some people will tempt you by saying the endowment policy offers tax benefits. Even if you take a term insurance, you’ll get tax relief under section 80C.

You should also get a personal accident cover. It will protect you and your family from things you cannot foresee—death, permanent total or partial disability. For a premium of just Rs.590 a year, you will be covered for Rs.5 lakh.

If your employer does not provide you and your family with health insurance, this is another priority for you. Make sure your whole family has health insurance cover since the cost of medical care is high in India and rising rapidly. Do not say that you are young and in good health. You never know what’s going to happen tomorrow.

Go easy on credit cards. Sure, you need a couple of cards in your own name, which will also help establish a credit history. Don’t be tempted by offers from banks for these and keep adding them. One man proudly flashed 66 cards! But unlike most of us, he was disciplined with them and used them to profit. Most of us are unlikely to have the time, skills or discipline for this.

Some people consider it a fashion statement to buy something with a premium credit card. Just flashing a fancy card in a department store in front of others boosts their ego. Remember, you have to pay huge fees for ultra-premium cards and may not really need them. When you use a credit card, remember, you may have bought something easily, but you have to eventually pay for it. Before you buy something with a credit card, think whether you can afford it. If you don’t pay the bills on time, banks will not only charge you a hefty interest but also levy large fines. If you repeatedly don’t pay on time, it’s all going to worsen your credit history.

Banks may tempt you by saying they would like to convert your balance to a loan, with ‘easy EMIs’. They will usually tell you, “only 3%”. It’s 3% a month, or, 36% interest a year!

A lot of young people buy things recklessly, especially on the internet, because of the ease of transaction. In a few years, they are neck deep in debt. It’s not uncommon to see people with 1-2 years’ experience having credit card debts of 2-3 lakhs.

Most students would have gone through college with a loan that their parents took. Most parents are eager that these loans are paid back quickly. With interest rate of up to 12% on these loans, it might appear to make sense to repay the loans quickly. That’s not always the case. These loans also have tax benefits. You should talk to a financial planner before you decide to repay the loans quickly.

We’ve all heard tales of a friend making tonnes of money buying this or that share. These storytellers never tell you how much money they also lost. Unless you have specialized knowledge of the stock market and have the required time, stay away from pure equities as a way of making money. Yes, investing in equities that you keep for 10 years or more will help you make a lot of money, provided it is the right investment.

The best option for you early in life is to invest in mutual funds. Put a little money every month in a mutual fund, in what is known as Systematic Investment Plan, or, SIP. If you invest, say, Rs.3,000 every month for 30 years, it will balloon to Rs 1 crore. Talk to a financial expert on which kind of fund suits you. There are hundreds of funds, each with a specific aim. Aim to save at least 10 percent of your salary for investing.

Since taxes are one of the inevitable things in life, you should pay attention to this. But only with the help of a professional. Don’t invest in things purely to save taxes. It is not always the right strategy. For instance, most young people put huge sums of money in bank fixed deposits (which typically earn 8.5%) or National Savings Scheme just before March 31 and feel happy that they saved on taxes. Instead, if you invest in a mutual fund’s Equity-Linked Savings Scheme (ELSS), chance are you can easily earn double what you’d get from a bank deposit. You should plan your taxes at the beginning of the financial year, not at the end.