Quick start guide to manage your money better

Published: February 27, 2022 at 6:00 am

A member of the Facebook group Asan Ideas for Wealth suggested we write a quick start guide for new earners/investors.

We already have a detailed step by step free ebook on how to buy term insurance, health insurance, set up an emergency fund, start investing etc. You can download this at the end of the article and start working on the steps – one each weekend. The chapters are also available as individual articles below.

So in this article, we shall focus on the immediate steps a person who has just started earning should consider. That is actions they can implement without too much thought or research.

Quick start money management guide

Money is there to be spent. There is no point in saving or investing money without enjoying the present. At the same time, we should also invest some of our money so that we can continue enjoying the present in the future.

Therefore a balance among needs; wants; savings; investing and borrowing is necessary. It will take time to achieve this balance. So the first is not to rush investing or borrowing.

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    1. You have just finished school + college. It has been a hard grind. So cut yourself some slack. For the first three months, buy experiences that you always wanted (without borrowing). Just set aside 10% of your income in another bank account. This is to handle unexpected expenses only. If possible set aside 20% for at least 5-12 months.
    2. For the next three months,  buy your parents or siblings experiences that they always wanted or would enjoy. For example, taken out on a place ride if they have flown before etc. Again without borrowing. Not everyone can do everything. You have to set your expectations well below that of your salary level. Life is tough. Brooding about it or looking at how your friends are living it up will not help your situation.
    3. All this while, you have been setting aside 10-20% of your income in a separate bank account.  Continue doing this. Now list things you wanted that cannot be obtained from a single month’s salary – bike; DSLR; An international holiday etc. Open recurring deposits for these. You can set the maturity date depending on the amount you can spare and the interest rate (a simple RD calculator will help with this).
    4. Do not buy any investment or savings products because your parents said so; your relatives said so; your bank RM said so (btw they are not our RM; they are the bank’s RM).
    5. If you do not have any dependents, then there is no flaming hurry to buy life insurance. The same applies to health insurance if your employer offers one. Yes, you need to buy one for yourself but it can wait a bit.
    6. Do not buy any product for “saving tax”. In fact, we encourage you to choose the new tax regime and entirely get rid of this tax-saving business.
    7. The next step is investing for financial freedom. Many young earners ask what is the minimum that they should invest. This depends on their income and expenses.  Suppose Rs. 10,000 is the total EPF contribution (employer + employee excluding the EPS contribution). Then invest at least Rs. 10,000 a month.
    8. If you are able to manage the above investment target, then aim for the next level: If X = monthly expenses (include any expense your parents or siblings are paying for) then invest at least X each month.
    9. But invest where? Choose a Nifty or Sensex index fund. See Plumbline Hand-picked mutual funds for recommendations. You can also opt for actively managed funds but be warned that their performance will fluctuate (but expenses will not!).
    10. Try to increase your monthly investment by at least 10% each year.
    11. There is no urgency to get a credit card. It can wait a year or so.
    12. Do not borrow (that is get a loan or pay via EMI) to buy consumables like TV, phone etc. Ideally, the only one you should get is a home loan but wait for at least 3-5 years for this. If there is an urgent requirement you can get a vehicle loan a year after you start earning.
    13. Stabilise your spending, your investing and your emergency fund before getting a loan.
    14. Note: At any point in time, the total EMI you pay should not exceed 30-40% of your total take-home income. Along with the EMI, you should still be able to invest 20-30% of your take-home pay.
    15. Do not waste time trying to increase your income with “quick-rich schemes” like trading. Focus on improving your skills and therefore your income.
    16. Ignore immediate perks like cash back, reward points and discounts. Have a 25Y, 30Y view of what you wish to achieve and think like a rich person.  To understand how to achieve this see: At 22 how should I design my investment portfolio and invest regularly?

    The next steps

    With these basic steps in place, you can consider:

    1) watching my corporate Presentation: Common sense approach to managing money and then proceed to the next steps like buying term insurance, health insurance, planning for other goals (if you have them).

    2) Watch the seminar: Basics of portfolio construction: A guide for beginners

    3) Get the free guide!  Download Re-assemble: Step by step money management basics for beginners

    Re assemble cover page
    Re assemble cover page

    Some of the articles in the book are linked below

    1: Listing your goals dreams and nightmares

    2: Lay the Foundations to Get Rich creating an emergency fund

    3: How to buy Term Life Insurance

    4: How to choose a suitable health insurance policy

    4a: How to buy a Super Top-up Health Insurance policy

    5: How to select a credit card for maximum benefit

    6: How to track monthly expenses and manage them efficiently

    7:  How to close your loans and live debt-free

    8:  How to buy a personal accident insurance policy

    9: Are you ready to let go and let your money grow?

    10: Investment planning case study 1: How to create an investment plan

    11: Case study 2: Retirement planning for 27-year old Amar

    12: Three Key Factors that decide how we achieve our financial goals

    13: How to buy a house with a home loan: Tips to maximize benefits 

    14: How to reduce risk in an investment portfolio.

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      Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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      Most investor problems can be traced to a lack of informed decision-making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
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