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Financial planning for new job entrants

By Kumar Prashant

It takes years of education and sincere hard work to find a job in our country. But the real challenge starts after that. A new job holder faces a completely different life and has a lot of financial freedom.

But, as a new entrant in the job market, salaries are low. Therefore, savings become secondary. It is very important to inculcate a savings habit as early as possible, mainly because all the big expenses in life come at a later stage. A stage will come when these youngsters will get married, have children, buy a house, etc and at the same time prepare for their own retirement. Improper planning may leave them vulnerable to perilous situations like debt traps, etc. So, it is proper to plan early and plan well.

Though most new job entrants do not have a lot of dispensable income to start with, the benefit they have over others is their ability to take risk. Also, since the salaries increase steadily over time, early adjustments go a long way in making their future secure and comfortable. Here are a few tips for new job entrants to make proper utilization of their precious salary.

Invest in a good term plan

A term plan is an insurance cover for a fixed amount of money payable to the dependents of the insurance policy holder on his death. The premium that is charged for providing such a cover, increases exponentially with age and diseases like diabetes and blood pressure. So the earlier one goes for a good term plan, the cheaper it will be, and since the premium amount does not change once you have taken the insurance cover, till the time that it lapses, a person can end up with a substantial life cover at very cheap prices. This is a must when you start a job.

Mutual funds

Basically, a mutual fund is an investment fund that pools money from various investors, retail and institutional, to purchase securities. Mutual funds are professionally managed, and investment can be done in two ways here, as a onetime investment of lump sum money or, Systematic Investment Plans (SIPs), in which you invest a fixed sum monthly. As a new job entrant, with a limited amount of money, it is advisable to invest in some good SIPs. The performance of mutual funds can be tracked and investment can be done as per the person’s risk appetite, though it is suggested that, as a young, fresh job holder, you should invest in funds that, though volatile in the short term, offer a higher scope of returns on investment over a protracted period of investment. There are basically three ways of investing, namely, debt, equity or hybrid, which is a combination of the two. While investing in equity is riskier, it has the potential to offer a higher rate of return than other instruments.

Health policy and

accidental insurance

It is crucial to go for a health plan and an accidental insurance policy as early as possible. Nothing will erode your savings faster than a medical emergency, and therefore it is prudent that you protect yourself against that. At a young age, it is easy to get a good health policy at a low premium, and with many health insurance companies going for cashless transactions and loyalty and claim free term benefits, it makes strong financial sense to go for it as soon as possible. Accidental Insurance is very cheap and a must to safeguard yourself against the vagaries of life.

National Pension Scheme,

Atal Pension Yojana and PPF

These are easy tax-deductible methods of planning for your pension at very economical rates. Invest a part of your savings annually in NPS, APY and PPF. Not only do you get tax benefits, but also you get an attractive rate of return over a long period of time leading to effective pension planning.

Recurring Deposits

These are the banks’ version of SIPs in mutual funds, minus the risk. You can start a recurring deposit for very small sums, and this will inculcate a sense of savings and give you good returns over a period of time.

  These are but a few of the options available to the new job entrants when they are just starting their journey and will keep them in good stead and prepare them for the various challenges in life. Sound financial planning is necessary to make the most of this journey called life.

The author is currently working as the chief manager for training in State Bank of India, Panaji. The views and  opinions expressed in the article are his own and not of the bank.

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