Financial Planning Before Starting First Job

Starting on your first job is a milestone event. The sense of accomplishment you feel while receiving your first paycheck is truly unparalleled. Until your first job, you may have funded your expenses with your pocket money. But earning your monthly income inculcates a sense of financial independence that most of us love to cherish for indulgent splurges. However, prudently managing your salary from the first month onwards can make a world of difference to your overall corpus. Learning prudent financial planning before starting your first job can help you achieve your dreams faster. This article lays down some financial planning tips you can adopt before starting your first job to streamline money management.

• Budgeting is vital to gaining control of your finances early.
• Prioritise high-interest loan payments and plan for emergencies ahead of time.
• Start investment, tax, and retirement early to maximise long-term financial growth. 

Learn how to budget

Understanding the importance of budgeting can go a long way. Implementing this financial planning tip before starting your first job helps you gain control of your finances. With the rising living expenses, especially in the metro cities, saving has become almost impossible for most young adults. If you want to systematically save, you need to have a budget. Draft a monthly budget where you calculate your fixed expenses like rent, groceries, and utilities. Factor in your monthly salary to see how much you can save. You can implement the 50-30-20 thumb rule for budgeting. Here, you use 50% of your post-tax income to meet fixed expenses, 30% to meet wants, and the remaining 20% to go into your savings fund.

Plan loan repayments

Debt can be a significant hurdle on the road to financial stability. Careful financial planning before starting your first job can help you systematically tackle debt and become debt-free as soon as possible. When starting your first job, you may have outstanding student loans, credit card dues, and a personal loan. Out of these, personal loans and outstanding credit card balances are high-interest debts that can quickly spiral out of control. Try to tackle them first to reduce your interest outflow over a long-term horizon. Create a debt repayment plan and stick to it to understand how much of your salary needs to go towards servicing debt and how long it will take to become debt-free.

Set up an emergency fund and get insured

Financial planning before starting your first job also includes planning for unforeseen events. This is the first step to a robust and sound financial plan. Create a plan to build an emergency fund once you start earning to avoid compromising your financial standing when faced with crisis situations. Dedicate a portion of your monthly income to this fund and store it in a liquid asset to ensure easy accessibility. Ideally, your emergency fund should have sufficient money to cover 3-6 months of living expenses when faced with an emergency like job loss or sudden repairs.
 

Additionally, you should check if your employer offers medical insurance coverage. If not, you should start comparing health insurance plans, quotes, coverage, premiums, and riders from different insurance companies. Once you start on the new job, you can get started with the insurance coverage as well. Follow the same approach with life insurance plans as well. Remember, buying insurance early helps you save on high premium costs and live worry-free.

Draft an investment plan

You must have heard the words ‘it’s never too early to start investing’. Now that you are at the cusp of earning, it’s essential that you have an investment plan in place to put your hard-earned money to work. Drafting an investment plan before starting your first job allows you to implement the plan as soon as you receive your first salary. Start by understanding the different financial instruments available - from market-linked instruments like stocks, bonds, mutual funds, and ETFs to traditional risk-free instruments like fixed deposits and recurring deposits. Identify your short and long-term goals and ascertain your risk profile to pick the right investment avenues. This is one of the most important aspects of financial planning before starting your first job.

Plan your taxes

Most first-time earners are reckless about tax payments. Overlooking the importance of tax planning can cost you dearly in the long run. It is helpful to start tax planning early. Understand the various tax allowances and deductions available on the various components of your salary and how they are calculated. Keep yourself updated with the latest revisions in taxation laws. For instance, the Union Budget 2024 increased the standard deduction from Rs. 50,000 to Rs. 75,000. Make sure to note these changes and plan your tax filing accordingly. Additionally, your tax planning endeavour should go hand-in-hand with your general investment strategy. In simple words, try investing in EEE and ETE instruments and maximising benefits u/s 80(C).

Initiate retirement planning

While it may seem counterintuitive to plan for retirement even before starting on your first job, getting an early start can make a significant difference in the long run. Prior to implementing this financial planning tip before starting your first job, check to see if your employer offers a pension plan. Your company may be registered with EPFO and offer PF benefits. If that’s the case, your employer already deducts PF contributions from your salary. Regardless of your official pension plan, it’s always best to have a personal retirement fund. Based on your projected financial needs to sustain your lifestyle in the post-retirement years, you can consider retirement planning instruments like PPF and NPS. You can start contributing as soon as you start earning to watch your corpus grow over time.

Keep housing costs low

Housing costs can be one of the most significant expenses when you start earning. Ideally, your rental cost should not account for more than 30% of your take-home salary. While it's tough to stick to this limit, you can try to manage costs by downsizing to a smaller place or finding a more affordable flat. Co-living and shared housing can be great options when you’re first starting out. Reducing rental expenses allows you to save more and allocate funds towards investing. Moreover, don’t forget to claim your HRA when filing taxes.

Diligent financial planning before starting your first job helps you take control of your finances from day one. Following the tips mentioned above, along with a little discipline and perseverance, can help you create a stable financial future. Remember that financial goals and circumstances change over time. As your career progresses, your income will rise and your goals will change. So, focus on drafting a financial plan that can accommodate these changes and adjustments. If you are looking for safe investment option, then 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 8.85% p.a.