Financial Advice for Beginners – a successful “FINANCIAL FUTURE”
You are 20 something with a sparkle in your eyes and a bright financial future awaits you. Fresh out of college with brilliant ideas in mind and with your own salary in the bank. What all can you do with your money. Spend and splurge or be diligent with your money and plan for a bright financial future, free from worries and debts. Here are a few tips you should consider for a bright financial future.
First Financial Advice – Pay your credit cards bills on time
Having a credit card is one thing which comes very naturally when you have just got into a new job. While you can buy anything with a credit card and pay all your bills through credit cards, it comes in very handy. Also you would have been told at the time of buying a new credit card that you can use the money free of cost for 50 days. All is good when you pay your credit card bills on time. The problem starts when you have spent more than you can pay for.
First Credit Card Mistake to Avoid
In all cases the credit card companies charge you an interest on total outstanding amount if the credit card bill remains unpaid beyond the due date. E.g. you bought a TV for Rs 25000/- on 25th July and enjoyed the free credit till 21st of August. Assuming your billing cycle was 2nd to 1st of every month. So your credit card bill would be due to be paid on 21st August. But for some reasons you were not able to pay the same and only paid the minimum amount say of Rs 1250. Your outstanding is still Rs 23750/-. And again you paid your regular bills through credit card which are on an average of Rs 5000/-. The interest that the credit card company would charge on your credit card till the next billing date would be on Rs 28750/-. Which would be again due on 21st of next month. This is where the problem actually starts. The interest charged on the credit cards is generally very high and goes up to 4 % on a monthly basis. And in this case it would be Rs 1150/-Which is more than 20% of your regular monthly bills.
Never roll – over or outstanding transfer on your credit card
The problem gets further complicated when you rollover or shift your outstanding from one credit card to another also called as outstanding transfer. The vicious circle doesn’t end here. Though you get some breather to pay your bill but very soon the pressure would start building up on the new credit cards as well. Then you might end up taking a personal loan to pay your debt.
“In the long run we shall have to pay our debts at a time that may be very inconvenient for our survival.”
Personal Loan never comes cheap
You should avoid taking personal loans as far as possible. Availing a personal loan would mean that you are not planning your finances properly. Never take a personal loan for investing into any speculative ideas or stock market to make it rich overnight. Because if the idea doesn’t work then you would have lost the money and would be paying through your future year’s income.
Some companies even offer personal loans for holidays, does it seem like a good idea. You spent money on your personal holidays and leisure and paying for it from your income which would accrue to you in next 3 -4 years?
Another problem with a personal loan is that it is a very short term loan and the EMI is very high. When you are looking at creating some serious long term asset like buying a home and availing a home loan, a personal loan EMI brings down you eligibility quite substantially.
Your credit History is important
Your credit history is important. In India CIBIL maintains a database of all the borrowers. Which is you credit history and any delay defaults in your credit card payments, personal loan EMIs result in bad credit history. In fact in developed countries for any kind of credit e.g applying for a telephone or electricity connection you need a credit bureau report.
Make small savings a habit – pay yourself first
Small savings during the early years of your career go a long way in building a financially successful individual. Irrespective of how much you earn, saving 10% from your monthly salary should be a habit. You would agree with me on the fact those 3-4 years down the line you would be looking at the major decision of your life buying a dream home. Even if you have your parental house; most of the Indians dream of buying their own home. And with this dream what becomes a necessity is of taking a home loan and paying EMIs on it. So it is important to first start saving and investing those small savings regularly. Build a corpus to create your bigger assets. Also have the discipline to save to pay your EMIs.
Your Regular Small Savings – “I call it Pay yourself first”.
Start an SIP
Systematic Investment plan in equity mutual funds arguably is the best investment option a starter can have. You can start with very small amounts every month. In fact as small as Rs 500/-. Here some mutual funds also give you the flexibility to choose 4 dates in a month to invest or even better you can also choose your own date to invest. You have to sign an application form only once and the money gets deducted every month automatically from your account.
Also equity Investing is best suitable for a young individual starting his / her career. As companies grow, their earning increase and that gets reflected in the share prices of these companies. Your money also grows.
Your investments get benefited from the rupee cost averaging concept. One can expect about 12% return from such investments over a longer period of time.
Buy yourself a Term Plan
Talking about dying at this stage is horrible and scary. But accidents and eventualities do happen. Parents spend their life’s savings in growing and educating their children. Untimely death of the son / daughter can be devastating emotionally and even financially. The emotional loss obviously cannot be replaced but there is an economic value associated with everyone’s life. The term plan can help replace that.