I was with a friend when his nephew asked him ‘what do I do with my money from my first salary’. He is a banker, but I thought I could add some value to what he could say to his nephew.
Here are the few things that I told him:
Understand the Time Value of Money! A Rupee saved at age 22 is far more valuable in life than a rupee invested at age 62. In other words, it is the Power of Compounding at work. Assuming money grew at 12%, R10,000 at age 22 would have become R12,80,000 at the age of 62. Nice to know why one should start early.
Offer to pay some part of the household expenses – electricity bill, maid salary, car maintenance – and fuel – more as a token of telling your parents that you are here to share the expenses.
Invest in experiences before you invest in things – travel, treks, or mountaineering – whatever.
Save up at least 80% of the price of a product – motorcycle or whatever else you wish to buy or own.
Do not succumb to credit sales – whether it is a Personal Loan or a Credit card. It is important to keep saying NO.
Build an Emergency Fund – and tell your parents that they too can access this because it was a Savings account with 3 holders – you with your parents.
Keep track of your expenses – using a good old notebook or by using apps which are available.
Once you start tracking your expenses, you will be more responsible about your expenses.
Take Term Insurance – for say R50 lakh – you can get only 10x your annual income – actually that is not a bad enough sum because there is nobody really dependent on you.
Start your PPF account –if your parents have not started it for you already.
Make sure you opt for the Provident Fund in your office – in the long run it will be useful.
See that you know and understand mutual funds – till you do not know which fund house to choose, stick to a fund house near your home.
Oops you want online?
All fund houses have decent online presence – choose between UTI, Birla, Nippon, you have a lot of choices.
Track your progress – see what percentage of your income you are saving, what is your asset allocation, what is your Net Worth.
Invest in improving – if you have done your Engineering, MBA, or CA – whatever your degree it is important to invest in learning MS office skills, public speaking, debating, etc.
Invest in your health – again the earlier that you get into health related activities – diet, exercise, playing a sport – whatever is required to be in a good health shape.
As John Templeton says, Start with a prayer, it helps.