Congratulations on scoring that lucrative new job! We understand that while the lure to spend the increased money you’re making is lurking just around the corner, you being the mature, sensible person you are, will be looking to balance spending on trinkets and indulgences with wise expenditures that will hold you in good stead over the long run. Having doubts about what the latter should comprise? Here are 5 immediate actions you’d be wise to take to be in an even better place!
1. Your Debts
If you have made the decision to reduce hefty or unnecessary purchases through your credit card and overdraft, you are on course towards the right direction. However, take the next essential step by paying off your existing debt. Take stock of your loans, mortgages, liabilities and dues. There are plenty of things ranging from interest free periods to extended overdrafts and low rates that will entice you to build up debts. Be very wary of them! These are time-tested traps to increase your total debt and bleed your funds dry, slowly but steadily. A penny saved is a penny earned. Remember once all your debts are cleared, every dime you earn will be your own and won’t be for someone else.
2. Build an Emergency Fund
The standard code is to put aside money for a rainy day or in this case rainy season, ranging between three to six months of expenditure as minimum. This money would come handy if you lose your job, or the transition period when you look for another job or if you are required to pay a hefty bill. The idea is to estimate whatever you can afford to save each month and putting it aside into this emergency fund.
For example if your essential utilities like gas, rent, electricity and food cost Rs. 10000 a month, then you should aim for Rs. 30000 fund. If cash is in very short supply, then start small. Saving as less as Rs. 2500 a month can fulfill your estimate in less than a year.
Do not get carried away by lofty ideas. Save what you can.
3. Do it like Warren Buffet (almost)
If money is the tool, then investment is the carpenter of wealth creation. The right investments could be the required push for future ventures. After ten years on the job, you may realize you have a flair for business. Good investments could be that essential capital for your own start-up.
4. Get a Place to Call Home
You might not be thinking of starting a family soon, but there are many benefits to buying a home. Another objection you might raise is that of affordability. Trust us, there is a plethora of budget yet attractive housing options in the annual income bracket of 6-10 lakhs. Moreover, considering the current slump in the real estate sector (due to which unbelievable bargains are available) and the ever-appreciating nature of real estate investments, buying a home in a developing area is a sound investment. In addition there is a sense of pride in having a place to yourself where you could see your future generations grow. (Or potted plants, if you’re feeling less committed right now.)
Properly structured mortgages if coupled with efficiently availed tax breaks could reap you some solid money in the future.
5. Buy Insurance – you (your loved ones) may need it
Insurances are instruments for hedging risks. The possibilities that your car might break down in the next two weeks, a person be diagnosed with severe illness, death of a person are events that are uncertain. Insurances are a cushion to these unplanned events and their consequent expenditures. There are a variety of insurance like life, car, casualty, property and health insurance, which protect you from a wide array of taxing events. In addition, some types of insurances act as a collateral and help you to take a loan.
Make a plan basis the above. Stick to it and do not look back.