A money management checklist for young earners

Published on / By M. Pattabiraman Twitter: @pattufreefincal

Published: February 18, 2024 at 6:00 am

Here is a money management checklist for young earners to start investing right. This is aimed at those about to start their careers or those who have started working in the last few years.

  1. Use your first paycheck and make your parents and the rest of the family happy.
  2. Use your second paycheck to get something for yourself (money is there to be spent, after all!). Just make sure these are not high-end recurring expenses.
  3. Get health insurance for parents (if not present). Get a separate health cover for yourself.
  4. If your parents or any other family member is dependent on your income, get life insurance (15-20 times annual income)
  5. Take 20-30% of your paycheck to another bank account or a liquid fund. This is your emergency stash. You can reduce this allocation after, say, 18-24 months. Increase it again suitably if you withdraw due to an emergency.
  6. Plan for a short-term goal: Maybe a bike, a DSLR, or a holiday? Allocate some money from your salary each – open an RD for 3 months or six months for these. Life is about finding the right balance. When it comes to money, the balance is needs, wants, savings and investments. Most people cannot find this balance because they do not have a surplus. You do, so you better find it!
  7. When all this is done, determine the sum of your investible surplus + mandatory retirement deduction.
    • Investment surplus = income – expenses – EMI
    • mandatory retirement deduction = amount deducted from salary for EPF or NPS, etc. (if you have this arrangement with your employer, else avoid)
  8. The total investment made = investible surplus + mandatory retirement deduction. Ensure 50% of total investment is into equity and 50% is in fixed income (EPF or NPS{without equity}, PPF if necessary
  9. For the equity part, start a SIP or invest on your own each month in a Nifty/Sensex index fund direct plan growth option.
  10. We recommend avoiding direct equity (stock) investing and trading.
  11. Increase your investments by at least 10% annually – this is the key to wealth.
  12. Track the monthly investments religiously (the investment made, not their value!)
  13. Focus on enhancing your skills and income. Think long term for your income
  14. There are other steps like portfolio rebalancing, risk management, etc. But those can wait a couple of years. You have the most important wealth of all – time. Do not waste an instant of it.
  15. Do not waste time on discounts, cashback offers or credit card reward points.
  16. Choose the new tax regime and avoid all tax-saving products.
  17. Do nothing for at least one hour a day: literally nothing. This is when ideas are born.
  18. Optimize time. Time management makes up for (self-perceived) lack of genius or intellect! Time is real wealth.

We wish you all the best.