Got your First Salary? Here are 3 Financial Planning Tips to Get your Journey Started!

The commencement of your first job brings a sense of significance. The ability to earn money is an empowering achievement. Why not commemorate this occasion by taking actions that yield long-term advantages? Presented below are three strategies to help you make the most of your initial salary.  

#1: Prioritize Saving Before Spending  

It is crucial to emphasize saving prior to indulging in expenditures. Additionally, there are two important follow-up actions that savers should consider. The first is investing in mutual funds, while the second aspect involves regularly investing the saved-up money. Additionally, having some tax efficient investments like tax saver mutual funds can also be beneficial in the long term.  

By investing in mutual funds, your saved-up money can yield greater returns. Mutual fund investments unlock the potential of compounding, enabling your savings to grow at an accelerated rate. Initiating these investments early, such as with your first salary, works in your favour due to the advantage of time. Why is time important? Simply put, the more time you have, the better the ultimate outcome. Equally significant is the practice of consistently investing the money saved. Neglecting to do so could result in missed opportunities during market upturns.  

So, what are the practical steps to take next? It may be wise to establish a regular investment plan, such as a SIP, for investing in a mutual fund scheme that suits your preferences. 

 #2: Always Prepare for Unexpected Financial Challenges  

You never know when the next economic downturn might occur. Failing to plan for such situations can lead to unnecessary borrowing. Experts recommend saving up 3-6 months’ worth of expenses. Mutual fund investing offers various short-term investment options.  

It is never too early to contemplate your inevitable retirement. Therefore, consider establishing an SIP that assists you in saving for your retirement. Refer to Table 1 below for a breakdown of the benefits of starting early:  

Rahul, aged 25, anticipates requiring a retirement fund of ₹ 10 crores by the time he reaches 60. He expects to achieve a long-term return of 12%. Table 1 illustrates the monthly investment amount he needs to accumulate ₹ 10 crores by the age of 60. 

Amount	Starts at 25	Starts at 35
Retirement fund at 60 (₹)	₹ 10 crores	₹ 10 crores
Monthly investment (₹)	₹ 15,450	₹ 52,627

#3: Understanding Income Tax Obligations  

Now that you are earning an income, it becomes necessary to pay income tax. The Income Tax Department allows taxpayers to benefit from deductions by investing under section 80C. Investments permitted under the 80C category include equity-linked saving schemes (ELSS mutual funds), life insurance policies, and tax-saving fixed deposits (FDs). Life insurance schemes provide financial protection in the event of loss of life, while ELSS schemes encourage individuals to build wealth. After allocating funds for insurance needs, consider investing the remaining amount in an ELSS fund. ELSS mutual fund schemes offer higher compounding returns compared to other alternatives. It is important to note that, similar to other mutual fund investment choices, ELSS mutual fund investing is subject to market risk.  

Table 2 below provides a suggestive list of options to help you make the most of your initial salary: 

Sr No	Fund	Goal	Time Horizon	Return Potential	Risk Appetite
1	Small Cap Fund	Financial freedom	Long term	High	Very High
2	Flexi Cap Fund	Financial freedom	Long term	High	Very High
3	Mid Cap Fund	Financial freedom	Long term	Above-average	Very High
4	Retirement Planning	Saving for retirement	Long term	Average	Moderately high
5	Equity Linked Saving Scheme	Tax savings	Long term	Average	Very High
6	Index Fund	Saving for retirement	Long term	Average	Very High

The initial steps of saving and investing are of utmost importance. Incorporating all three strategies will yield substantial dividends in the long run. 

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.