Learning money management strategies is often difficult for a new earner. While stepping into the real world and workforce brings independence, it also brings responsibilities to manage your earnings better. Most of us live in a financial bubble during school and college years, where our expenses are met by parents or guardians. Once we start earning, we tend to prioritise indulgences like dining out, planning trips, etc. However, spending too much on one-time indulgences can cost you dearly in the long run. Therefore, learning financial discipline from the early days of earnings is essential.

This article outlines the 3 essential financial planning steps for the new earner to help you improve your spending patterns and save and invest better.

• Set aside money every month to create an emergency fund that covers at least 3-6 months of your living expenses during unforeseen emergencies.
• Get insured early to lock in low premiums, enjoy tax exemptions, and stay protected.
• Start investing early to exploit the power of compounding and build wealth with equity investments.

For every new earner, financial planning should start by saving for themselves. While the occasional splurging on expensive dinners, branded clothing, and vacations is acceptable, you must also learn to start saving for yourself. This means setting up a separate contingency fund for unforeseen situations. The unpredictable nature of the world around us makes it impossible to anticipate impending emergencies like job loss or sudden medical expenses. That’s why it's important to always stay prepared and create a contingency fund.

According to financial experts, your emergency fund should include at least 3-6 month’s earnings to help you tide over unforeseen expenses. You can save these funds in a liquid mutual fund or a fixed deposit account where the money earns returns until it's needed. Remember to park your funds in a liquid account to ensure it's easily accessible during a cash crunch. If you are looking for a safe investment option, you can consider fixed deposit. They offer guaranteed returns and a fixed interest rate throughout your investment tenure.

While getting insured is one of the most essential financial planning steps for new earners, it is often ignored in the early days of one’s career. According to a report by the Global Burden of Disease study in 2016, India witnessed a 2-3-fold increase in ischemic heart disease and stroke between 1990 and 2016. Along with cardiovascular diseases, chronic ailments like diabetes are also on the rise. The rising possibility of contracting long-term chronic diseases is accompanied by a steady rise in medical costs. In case of a medical emergency, you will have to pay hospital bills as well as pre- and post-hospitalisation charges, which can burn a hole in your wallet. Therefore, investing in a comprehensive medical insurance plan is prudent right from the day you start working. You can compare quotes from various carriers and review riders and coverage inclusions to make an informed choice.

Opting for health insurance early can actually help you save money in the long run since premiums are lower for younger applicants. Moreover, you can claim tax exemptions up to Rs. 25,000 u/s 80(D) of the Income Tax Act 1961 on health insurance premiums and lower your overall tax liability. Some insurers also allow you to avail of no-claim bonuses to increase your base coverage if you do not claim your medical insurance in a particular year.

Apart from medical insurance, you must also insure your life, especially if you are the sole breadwinner in the family. Pure life term plans offer comprehensive life covers to safeguard the financial future of your dependents. If you have ageing parents and young siblings, it's best to ensure they remain well-protected even in your absence. Ideally, your term plan should offer 10x your annual income as the sum assured. Remember that pure term plans only offer a death benefit for the demise of the policyholder during the policy term. There is no maturity amount payable if you survive the policy term. Therefore, you should assess the requirements of your dependents (factoring in inflation) to pick the right term plan that offers an adequate sum assured and affordable premium rate.

When it comes to financial planning steps for new earners, initiating your investment journey early is one you just cannot ignore. Ideally, you should start investing right from your first paycheck onwards. While thinking about retirement may seem premature when you’re just 25-26 years old, remember that it’s never too early to start planning. Getting a head start on your investment journey helps you capitalise on the power of compounding. Compounding works in tandem with time. The more time you give your money, the better chances it has to grow exponentially. The key is to invest in instruments that offer compound interest benefits like cumulative fixed deposits, mutual funds, PPF, and NPS. You can consider investing Bajaj Finance Fixed Deposit. With a top-tier AAA rating from financial agencies like CRISIL and ICRA, they offer one of the highest returns, up to 7.95% p.a.

Investing in equity is one of the best ways to build wealth over time, especially when you’re young. Equity investments work best when done for a long-term horizon. Since such investments are subject to market volatility and carry a higher risk exposure, they require a longer recovery time. As a young investor, you can take advantage of a long investment period and easily recover from losses (if any) when markets rebound. There are various ways of investing in equities. If you have fair market knowledge and enough time to research and manage your portfolio, you can invest in stocks of companies directly. But if you lack thorough market knowledge - since it’s impossible to master knowledge overnight - investing in equities through mutual funds may be a more prudent approach. Since mutual funds are managed by professional and experienced fund managers, you can rest assured about your investment as long as you pick funds that best align with your goals and risk tolerance levels.

Learning the crucial steps to financial planning is essential for a new earner to make every penny count. While the allure of spending your first few paychecks may be difficult to bypass, it is important to understand the value of financial literacy. By saving for emergencies, getting adequate insurance coverage, and investing early, you can embark on a strong financial plan from day one, ensuring a stable fiscal future in the coming years.