First Salary: What To Do With First Salary?

Receiving your first salary is an exciting milestone that marks the beginning of a new phase in your life. It not only brings a sense of financial independence but also boosts your self-esteem and confidence. While it may be tempting to splurge on gifts or a celebration with friends, it’s important to think beyond the immediate gratification and plan for the future. This is the time to start building a solid financial foundation that will help you achieve your long-term goals.

Whether it’s buying a house, a car, or pursuing further education, taking those first steps towards financial stability will ensure that you’re well-prepared for the road ahead. By taking a proactive approach to managing your finances early on, you can set yourself up for success and achieve your goals faster. So, here are some key things to do when you receive your first paycheck to help you take control of your finances and build a solid financial future.

What To Do With First Salary?

Your first monthly income could range from Rs. 25,000 to Rs. 2 lakhs or more, depending on your specialisation. However, how you manage your money has little to do with how much you make. The methods described here can help you save for your future no matter where you are on the pay scale.

Build an Emergency Fund:

“Almost 55% of all expenditure on health in India is financed out-of-pocket” (Source: How much do Indian households spend on healthcare every month?. So, safety First. Building an emergency fund is an essential component of financial planning, particularly if you want to avoid debt. It enables you to prepare for unforeseen situations, such as a sudden home or vehicle repair, or a medical emergency. For example, imagine you’ve been working for two years when a family member has a medical emergency, resulting in a significant bill that you need to pay. Without an emergency fund, you may need to dip into your savings or borrow funds, which can cause financial stress and increase your debt. But if you have an emergency fund, you can cover the expense without affecting your savings or accumulating more debt.

Experts typically recommend having an emergency fund that’s at least 10 times your monthly income, although you may need to build a more substantial fund depending on your circumstances. By building an emergency fund, you can prepare for the unexpected and safeguard your financial stability, ensuring that you’re always ready for whatever life throws your way.

Make a Budget

Creating and following a budget is essential for managing your earnings effectively. A budget helps you keep track of every rupee you earn and spend and allows you to adopt a savings plan that works for you. One popular budgeting rule for beginners is the 50-30-20 rule.

This simple rule divides your monthly income into three categories: 50% for your needs, 30% for your wants, and 20% for your savings. For example, if you earn Rs. 50,000 per month, you can allocate Rs. 25,000 for your needs, like rent, EMI, and provisions, Rs. 15,000 for your wants, like entertainment and eating out, and Rs. 10,000 for your savings. By following this rule, you can balance your spending and savings, and work towards achieving your long-term financial goals.

Pay Any Kind Off Debt

It’s no secret that having your own income can be exciting and tempting, but it’s important to resist the urge to rack up debt. Using credit cards to the maximum limit or taking out a personal loan may seem like a quick solution, but it can quickly derail your savings plan. To effectively manage your first salary, it’s crucial to prioritize paying off existing debts and avoiding taking on more than you can afford.

When borrowing money, focus on debts that help create assets, like home loans, which not only offer tax benefits but also increase your net worth. By making responsible borrowing decisions and prioritizing debt repayment, you can maintain a strong financial foundation and achieve your long-term financial goals.

Start Investment

Investing can seem daunting, especially if you haven’t set specific financial goals yet. However, it’s never too early to start your investment journey and begin allocating funds. In fact, taking the time to learn about different investment options and exploring which ones align with your risk profile can help you make more informed decisions in the future.

By starting to invest even without clear goals in mind, you can gain valuable experience and knowledge that will help you set more realistic goals and allocate your investments more efficiently. So, don’t let uncertainty hold you back from investing your first salary. Take the first step, learn and explore the different investment avenues available, and start building your investment portfolio today.

Invest in a Life Insurance

While life insurance may not seem like a necessity when you’re young, healthy, and perhaps single, it’s important to consider the long-term benefits. Waiting a decade or so to purchase life insurance until you’re in your 30s could lead to an increase in premiums. That’s why it’s recommended to invest in life insurance when you’re young and in good health.

Starting with a term plan is a wise decision since it provides substantial coverage at a very reasonable price. When you reach your 30s, you can re-evaluate your life insurance needs and adjust your coverage as necessary. Having life insurance ensures that your spouse, children, and dependent parents have a financial safety net to rely on if anything unexpected happens to you.

Investing in life and health insurance when you are young and healthy helps protect your family’s financial future, and it is an excellent way to ensure that they will be taken care of in the event of your untimely demise. Therefore, don’t wait until it’s too late to purchase life insurance, as investing early will help you save money and provide your loved ones with the security they require.

Set Up Automatic FD Deposits

Setting up an automatically fixed deposit instruction is an easy and effective way to save money and increase your earnings. With this feature, you can effortlessly accumulate funds for the future without having to actively transfer money to a fixed deposit account. This is especially helpful if you struggle with saving money or simply don’t have the time to manage your savings.

By earning higher interest rates, you can maximize your returns and reach your financial goals faster. Plus, the peace of mind that comes with having a substantial emergency fund or nest egg is invaluable. So, if you’re looking to save more money and make the most of your earnings, consider setting up an automatically fixed deposit instruction with your bank.

Buy Proper Clothing that Suits Your Job

Now that you have landed your first corporate job, it is important to look and feel your best. Keeping a professional appearance can boost your confidence and help you make a good impression on your colleagues and superiors. While it may seem daunting to build a professional wardrobe, it doesn’t have to be expensive or stressful.

You can start by investing in a few key pieces, like a well-fitting suit or blazer, dress shoes, and a few dress shirts or blouses. You can also seek advice from your colleagues or friends who have experience in corporate dressing. Remember, dressing professionally is not just about the clothes you wear, it’s also about presenting yourself with confidence and self-assurance.

Gift Your Family

It’s important to show gratitude to your parents for all they’ve done for you throughout your life. In India, parents bear the responsibility of paying for their children’s education and supporting them financially. As you start earning your own income, consider supporting your parents in their old age as a way of showing your appreciation for their sacrifices and hard work. This can be a source of pride and happiness for both you and your parents.

Reward Yourself

Finally, don’t forget to treat yourself! You have worked hard and deserve to enjoy the fruits of your labour. As an adult, it is important to appreciate the present and make the most of it. It is crucial to strike a balance between work and play, as constantly living for work can be draining. Additionally, spending money on things that bring you joy can motivate you to continue working towards your goals.

FAQs

Does your first salary matter?

While the amount of your first salary is important in determining your initial pay scale, what truly matters is how you manage it. Even if you earn a high salary, saving little or nothing each month can leave you worse off than someone with a lower salary but a solid savings plan. Therefore, it is crucial to prioritize building good financial habits early on in your career, regardless of the size of your paycheck.

How to manage your salary every month?

To secure your financial future, it is important to learn how to manage your salary and prioritize savings. Developing a budgeting plan and establishing an emergency fund can be a great starting point. Additionally, a Systematic Investment Plan (SIP) can be highly beneficial as it encourages disciplined and regular savings each month. With a well-planned approach towards managing your finances, you can achieve your financial goals and build a solid foundation for your future.

How to Invest Your First Salary?

To begin investing with your first salary, it’s advisable to establish an emergency fund or consider investing in a tax-saving scheme such as PPF or ELSS.