First Job, First Salary! How To Make Most Of Your First Salary!
I Got My First PayCheque.Should I spend, save it; invest somewhere or what to do?
Getting the first paycheque or salary is always a wonderful experience for everybody. And yes, congrats for your first job buddy…
What will you do with the money? Most people spent it lavishly with friends, family and near or dear ones which are absolutely fine for to celebrate one’s first pay cheque.I remembered when I got my first salary I had almost spent it with my friends with very little left for the monthly expenses to come. But why am I telling this? Everybody does the same too and it is quite understandable. But what could be other ways to spend one’s first salary. Though there are many, I think of the following minimum should have possibilities one should do with their first salary.
- Remembering Parents and Near or dear ones.
It might be your first success in career after lots of hard work or you might have got your job straight after passing out from college. In any case, it’s our parents whose constant effort financially or non-financially has helped us achieve this. So it is our payback time for them. After all, it’s always family first. Why not give them a gift or any surprise, no matter how small or big it is. For example, you can give a treat to your parents in their favorite restaurant or some wrist watch for your father etc. It will give them the best happiness of their life when their son or daughter gives them a gift from his or her first salary.
Then there were your friends and dear ones who stood up to you in your struggling time. You are the better person to know who are those who helped you in some ways.You should meet them and gave back what they owe, as a token of “thank you for everything guys…”
- Give a Pat On your back
What else are you waiting for? you can spend on the things you have always thought for. It can be the pair of shoes or a branded watch or anything that you like. Spent time with your friends, families.If possible Go for a trip to your favorite place you always wanted to.Give some treat to yourself for your hard work.
- Make Some Donation
You can contribute some portion from your salary to donate to some trust or organization working for the underprivileged. It gives some self-satisfaction and a sense of feeling that you do care.
- Start Repaying Your Loans
It really does not matter how much you are getting from the first job. You can entirely spend your first salary, the way you want.Does it contradict with the above-mentioned points?Well, It is quite not possible to control your feelings to spend your first salary and as per my opinion, you should not control also after all it’s your first job and first salary. Do you agree? Alright…
But shall we continue to do same(spending the way you wanted always) with future salaries to come? If we do what will be the outcome.
What Happens If Expenses Are Not Controlled
When you start earning you get to the exposure of many financial instruments available in the market which are easily accessible like credit cards, personal loans car loans etc. These are not your assets but in other ways urges you to spend more on your WANTS(things without which you can easily live or things which do not badly affect your life condition). For example, you saw a new branded car came to market and could not control your Urge of buying it(WANT). Because of the easily accessible instruments credit cards, personal loans, car loan etc you went for the buying decision, even though your salary does not permit it. but yes you have a good limit in credit card or got the personal loan.This simply adds up to your liabilities. So, If the urge of buying things instantly, is not controlled very soon you would not have realized that you are living your life in liabilities.Things get in the loop if you spend thinking your financial situation will improve in next pay hike.because you may end of buying or spending on expensive stuff thinking the pay hike which you can not predict.Just look up your monthly bank statement, credit card bills, personal loan EMI, car loan EMI etc, which can give an indication of how much you are earning and how much is going in liabilities and you may realize that you are almost living life beyond your control.
So what you should do.”Budgeting”could be the answer. This is the most important part of one’s early financial life where things can go wrong. I think you are with me!!!Thanks.
What is Budgeting?
Understanding, In layman term it says How much we expect to earn in a given period and how much we can spend.If Earning is less than spending then the budget will be a deficit.If earning is more than spending, the budget is surplus and if both earning and spending is same it is called a balanced budget.We all wants to be in the surplus category right?Budgeting helps in achieving this.Below are few of many benefits one can get from budgeting.
Why To Do Budgeting?
There are many benefits of doing budgeting and here are some of my personal experiences I could think of.
- It will help you controlling your emotions/urge for new instant expenditures (WANT) which are not a NEED. For example, you saw a new branded watch in the mall and your immediate reaction is to buy it, which you could have avoided and kept for future purchase. You already have a watch. “Branded Nahi he par time to same dikhata he :)” (Not branded watch but shows the same time)
- It creates an attitude of discipline making to save more from your hard earned money.
- It may help you decide on your buying priorities. For example whether to buy new clothes for your dad or new watch for you
- Very important, if followed it will inculcate a new saving behavior in you, which will reflect in your action and hence become your habits soon. So why not to follow little steps to have a good habit of saving more money. As there is a proverb “Your actions become your habits”. The sole purpose is to maximize our savings which can be utilized for the future purpose.Here is some guidance on how to follow it.
How To Do Budgeting?
As we discussed budgeting will help in many ways.Budgeting is done to manage your present financial condition so that you can save more from your earnings after the liabilities.Budgeting will be different for different people depending on their age, lifestyle, and priorities.There is no such hard and first rule to follow to do budgeting.But Harvard bankruptcy expert Elizabeth Warren created the 50/30/20 rule of thumb for budgeting.
This will help any individual to move in the direction of how to do it irrespective of their life stage.
- Find out Your Monthly Income after Taxes
This is the income you have after all taxes are deducted from your salary. The salary statement will give the value of net monthly income. There can be variable or bonus options in your pay package. Do not include these in your monthly income if you are not sure to get them. Well if you get it, consider it to spend for your WANT :). If you are having any other source of income you add it to the monthly income.
- Try To Spend Maximum 50% for Your needs From the Monthly Income
These are the spending you should keep aside mandatory to spend for like your Groceries, Housing Rent, Utilities, Insurance etc.If You have any loan the minimum EMI is also taken as a need.As if you do not pay it, it will simply add up to the liabilities and credit ranking also will go down.
- Limit Spending For Your Wants to Maximum 30%
Any expense which are not badly affecting your life and without which you can live is a WANT. This percentage seems to a big chunk of monthly income. Yes, many times unknowingly spending on NEED becomes WANT .Buying cloth is NEED, but to buy it in a sophisticated mall it will be a WANT.Whatever, you have 30% for your WANT :). So enjoy.
- Spend Rest 20 % On Savings, Investments or Debt repayments
Try to utilize the 20 % of monthly income to save for your future purpose.You can put the money in some savings account, retirement fund or use in repaying the debt after the minimum EMI, taken car loan for example.
Though just sticking to the above formula may not help everybody as the financial situation is different in different stages of life.The idea of the blog post was on the individuals who just started their financial career and are in their early stage of life.
This formula helps in showing the right path to saving and investing.
Are You Noticing Below Changes?
In no time you have developed a habit of self-discipline. This is a great achievement for sure.
If your expenses are going beyond control, budgeting helps you in reviewing where it is going wrong. On what expenses money outflow is more. For example, you might notice you have spent time with friends eating out in restaurants 10 times this month.If You have done budgeting it will help you notice this as it will upset the budget assuming you are following strictly.So next time you can reduce this expenditure to five instead of ten.
Are you now thinking before spending? Good news. Budgeting helped you in thinking before buying/spending. That is if it’s a WANT or NEED. If it is a WANT what is the priorities. You are doing good if above change you are being noticed in you. Keep Going. it really helps
Why you should do budgeting early in earning stage ?
Though anybody at any stage of their life can do budgeting, Let’s focus only on the young blood who started their careers. Everybody has their own goals to achieve or they have dreamt of. Like buying a House, Buying a new car, having a grand marriage etc.
If one start budgeting early, as discussed above, it will help in finding ways to save more money from the individual’s income without compromising the lifestyle.With this saving, they can utilize it in investing in other assets to achieve their goal as time is in their hand.For example, anybody who started earning at 25 wanted to buy a house after 5 or 7 years, if starts budgeting immediately, it will greatly help in saving for the down payment he has to give for the house purchase.The examples are many.
I hope you like the article.Do comment your own experiences on how you spent your first salary and if you are following some budgeting exercise.I will come with another article on “in what other ways we can save more money” and what we can do with this money we saved by doing budgeting.