I got my first job right out of college, at the age of 21. I was proud of the fact. When I quit after a year, I was horrified to realize that I was still financially dependent on my parents.
Wasn’t getting a job supposed to mean never having to ask my parents for financial support? Where had I gone wrong then?
I found the answers now, after having studied further and worked for 4 years. Here is a 5 point financial checklist which I wish I had followed in my early years.
#1. Following the 70% rule
Born and brought up in a well-off family, I never bothered about how my living expenses were being taken care of. Working in a big city, I came to terms with the fact that mere survival takes up all my salary. A fresher’s salary in India was not enough for my extravagant lifestyle.
Only after I quit my job and found myself back to square one, I realised that I should have limited my monthly expenses to 70 per cent of my salary and sacrificed a few splurges like a pair of Nike Slippers. This way, I would have had some savings for a rainy day.
#2. Creating an Emergency Fund
My early 20s were a series of reckless spends, be it a party or a movie. As I did not plan, I ended up burning all my money on avoidable expenses. However, these experiences have now taught me to save at least 20% to 30% of my salary every month.
I began putting these savings in my Emergency Fund – which should ideally have 3-6 months’ worth of expenses in a year. Today I can focus on my long term goals of taking a home loan as I have funds for the EMIs.
#3. Not giving in to instant gratification
With mind-blowing deals on online shopping portals cropping up dime a dozen, it was always challenging to not fall for them.
But then I stopped and thought for a second if I was spending on something I didn’t even need in the first place! Think about it, do you really need those insanely loud speakers because you are getting them on 50 per cent off? Instant gratification often means instant depletion of your savings.
#4. Paying credit card bills on time
My first credit card, was an achievement, as I no longer depended on my parents for shopping! I felt comfortable with the idea of a deferred payment. Often I found myself exceeding the card limit and asking my Dad to transfer some amount in my account.
I therefore learnt to not take my credit card for granted. This helps me keep a tab on avoidable expenses.
#5. Not just saving but investing
By the time I became a senior executive, and had some savings, I realized that merely saving is not enough to grow your money. The value of money depreciates over time, due to inflation.
In simple terms, with a Consumer Price Index rate of 5 per cent (the January CPI was 5.69%), the worth of Rs. 100 at the beginning of the year, depreciates to Rs. 95 at the end of the year. That’s why whether you invest in FDs or mutual funds, you must aim at inflation beating returns.
I learnt that it’s essential to invest my savings, instead of keeping them idle in a bank account. Today, I bifurcate my investments in equity and debt mutual funds and also make sure that the effect of inflation is factored in.