Uma Shashikant
The author is Managing Director, Centre for Investment Education and Learning,
It is the season of the young taking up their first job assignment. The first pay cheque starts the journey into the world of personal finance. Here are six pointers to help you in this exciting, sometimes stressful, journey with money.
First, managing money is primarily about cash flow. The income earned comprises the inflow and the expenses incurred constitute the outflow. Both these do not match in time or amount, and worse, remain unpredictable for most part.
While a gift for your mom will fit into your first pay cheque, the car you wanted to buy may not. You may spend happily in the early days of the month, but an unexpected trip to your home town may leave you seeking hand loans at the end of the month. Making a monthly budget is an obsolete art.
A simpler option is to list out and pay off all mandatory expenses, such as the education loan, rent, phone bill, among others, as soon as the cash comes in. What remains is relatively easy to manage even if you decide to stay at home the last weekend since you exhausted the cash. Separating the routine from the unexpected is a good skill to acquire.
Second, learn to think of cash as a limited resource with multiple uses. There is always an alternative use you can put your money to. Think about it when you allocate cash. Spending comes with a happiness quotient and the independence of financial decision-making gives everyone a high.
Being too conservative makes you worry that you are not enjoying your earning; spending too much leads to guilt of not being careful with money. A simpler way to deal with this problem is to have a mental budget that is represented as a percentage of your monthly income. This gives you a good sense of how you apportion your money.
You may like to think that 10% should be used for going out with friends; 15% for your clothes and grooming; 10% for books and movies; 40% for running your home, and so on. This helps to view your spending in relation to your income, and you will know when you cross the line.
Third, money grows in value over time, if invested. The basic math to know when you deal with money is that a rupee invested today will gain in value and be worth so much more in the future. Therefore, leaving money undeployed erodes its worth. When you allocate your income, pay yourself first.
A 10-20% allocation to saving and investing means that this amount, which you leave untouched in an investment, grows in value with time and you build an asset. Building assets can help you manage your future cash needs better.
Your ability to manage any risk to your income from job changes, or your need to part-fund a higher education, or your ability to take a break to raise a family, all depend on how much you have accumulated as investment and assets.
You can derive an income from your assets, sell when in need, offer them as collateral for loans, liquidate partially or offer as guarantee.
The author is Managing Director, Centre for Investment Education and Learning,
It is the season of the young taking up their first job assignment. The first pay cheque starts the journey into the world of personal finance. Here are six pointers to help you in this exciting, sometimes stressful, journey with money.
First, managing money is primarily about cash flow. The income earned comprises the inflow and the expenses incurred constitute the outflow. Both these do not match in time or amount, and worse, remain unpredictable for most part.
While a gift for your mom will fit into your first pay cheque, the car you wanted to buy may not. You may spend happily in the early days of the month, but an unexpected trip to your home town may leave you seeking hand loans at the end of the month. Making a monthly budget is an obsolete art.
A simpler option is to list out and pay off all mandatory expenses, such as the education loan, rent, phone bill, among others, as soon as the cash comes in. What remains is relatively easy to manage even if you decide to stay at home the last weekend since you exhausted the cash. Separating the routine from the unexpected is a good skill to acquire.
Second, learn to think of cash as a limited resource with multiple uses. There is always an alternative use you can put your money to. Think about it when you allocate cash. Spending comes with a happiness quotient and the independence of financial decision-making gives everyone a high.
Being too conservative makes you worry that you are not enjoying your earning; spending too much leads to guilt of not being careful with money. A simpler way to deal with this problem is to have a mental budget that is represented as a percentage of your monthly income. This gives you a good sense of how you apportion your money.
You may like to think that 10% should be used for going out with friends; 15% for your clothes and grooming; 10% for books and movies; 40% for running your home, and so on. This helps to view your spending in relation to your income, and you will know when you cross the line.
Third, money grows in value over time, if invested. The basic math to know when you deal with money is that a rupee invested today will gain in value and be worth so much more in the future. Therefore, leaving money undeployed erodes its worth. When you allocate your income, pay yourself first.
A 10-20% allocation to saving and investing means that this amount, which you leave untouched in an investment, grows in value with time and you build an asset. Building assets can help you manage your future cash needs better.
Your ability to manage any risk to your income from job changes, or your need to part-fund a higher education, or your ability to take a break to raise a family, all depend on how much you have accumulated as investment and assets.
You can derive an income from your assets, sell when in need, offer them as collateral for loans, liquidate partially or offer as guarantee.
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