Personal Finance Essentials For Young Earners

Published: April 1, 2016 at 6:59 am

Last Updated on November 4, 2017

I am a ‘zero’ when it comes to personal finance! Where do I start? I would like to change my attitude towards money and my financial status.

If these statements reflects the state of your mind or if you know people who feel that way, here is a list of personal finance essentials to work on.

Credits: This post is based on emails, comments on blog and in facebook group Asan Ideas for Wealth and encouragement from Ms. Charulatha.


When I started my third post-doctoral assignment in a national lab, I was asked to automate (run via computer) a sophisticated instrument for measuring small magnetic fields.

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    It was a monster of an equipment and I knew nothing about writing code to automate instruments. I had to learn the coding from scratch. I tried reading books on how to master a programming language called ‘labview’.  I thought of attending training sessions for it.

    I got nowhere. I decided to learn the language piece by piece. Instead of worrying about basic commands and learning them, I asked myself

    What is the first step I need to take in order to operate the instrument?

    I knew the answer to that (nothing more than commonsense).

    I sought to write code for that step alone. I ignored all the ‘basic lessons in programming’. I had a requirement and I sought a solution for it.

    I searched for that online. I soon got an answer.

    I then focussed on the next step, wrote an independent piece of code and attached it to the first piece and so on.

    By the 3rd or 4th step the skeleton of the code was forming. I also learnt a decent amount of Labview commands that helped me complete future steps fast.

    Soon I wrote a decent working code. It was far from optimal but got the job done without crashing the computer.

    This experience immensely helped me in life,

    • when I was putting my financial life in order I just followed the same method outlined above,
    • when I started making Excel calculators, I was a zero in Excel. I followed the same method.

    In this post, I would like adapt this method to set down a list of personal finance essentials for young earners.

    Shut yourself out

    Don’t worry about reading books on personal finance, blogs or the business channel. Stay away from all of them.

    The answers lie within you! Yes you. You hold the key to  financial control. No one else. Never ever, forget that.

    Don’t worry about reading books on personal finance, blogs or the business channel. Stay away from all of them.

    The answers lie within you! Yes you. You are the key to your financial control. No one else. Never ever, forget that.

    Find yourself a quiet corner

    Switch your mobile phone, toss your i-pad or laptop aside. You will need to think about your life. The more you think the more action items you can list.

    Solved Examples!

    Here are a list of questions for you to think about. This is just get you started. Once you get the hang of it, the questions will form on their own.

    1. Do you have money to handle a sudden expenditure? Say your bike is parked in the road and a truck rams into it. Do you have the cash to repair your bike?
    2. What if you were sitting on the bike when the truck hit you? How will you manage hospital expenses?
    3. What if you did not survive the above accident? How will your dependents manage monthly expenses? How will your children study?
    4. Are you in debt? Owe someone or something(!) money? Pay EMIs for an appliance/gadget? Have a personal loan?
    5. You manage expenses now because you have an income. Years from now, when your income stops, how will you manage?
    6. Do you have a forthcoming ‘major’ expense this year, the next, 5 years from now?

    How to get started: Young, unmarried, earner

    Activity zero: Do not buy any product for tax-saving! Do not open a PPF account!

    Activity 1:  Scrap up all the money you can and put it in a bank account. Take a part of it and open an online fixed deposit. This will be your emergency fund. You will need an amount equal to about 6 times your monthly expenses or more. So don’t stop until then.

    Activity 2: Get yourself a mediclaim policy even if your employer offers you one. Ensure you cover your parents also. Get as high a cover as possible and increase it each year. Understand associated tax benefits.

    Deadline: 10 days! One week to read about mediclaim policies and 3 days to get yourself one

    Activity 3: Resolve to clear your appliance/gadget EMIs, credit card dues, personal loan etc. Scrap up some more money and prepay from time to time.

    Activity 4: Start investing in mutual funds. If your total 80C deduction is below the Rs. 1.5 Lakhs limit, aim to invest as much as possible in ELSS mutual funds. Open an account with an AMC and invest as much as possible from time to time. Do not start a SIP in ELSS fund! Need help choosing a mutual fund, read this guide.

    • Do not buy a ULIP
    • Do not buy an endowment policy
    • Do not buy a pension plan
    • Do not buy a child plan
    • Do not talk to your relationship manager!
    • If you complete the above steps, you will not have money in your SB account! So your relationship manager will not talk to you!

    Do the above, one after the other. You are sure to feel good about yourself. You could then act on your other requirements, read more etc.

    How to get started: Young, married, earner

    Activity zero: Do not buy any product for tax-saving! Do not open a PPF account!

    Buy yourself a pure term insurance policy online for a sum equal to at least 15 times your annual income. If you can afford more, buy more. Make sure you buy it only for next 20-25 years. That is as close to your retirement age as possible.

    Activity 1:  Emergency fund. Same as above

    Activity 2:  Mediclaim Policy. Same as above. Include your wife and her dependents if needed.

    Activity 3: Get out of bad debt. Same as above

    Activity 4:  Mutual Fund investing. Same as above

    Activity 5: If you have kids, think about their future needs: education, marriage etc. and how you are going to invest for those.

    Read no books until you have completed these basic steps.

    Read no blogs/magazines without a purpose.

    The questions lie within you.

    The answers lie within you.  

    Tackle one question at a time. Answer it. Act on it and move on to the next. This post only aims to sort the essential questions in the right order.

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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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