The Beginner's Guide

Are you fresh into your job and confused how to invest? Read on to find out how and where to invest.

By Priyadarshini Maji  
Tuesday, February 9, 2016

"If you don't know where you're going, you might end up somewhere else and not even know it."

"I started working recently. I am able to save Rs 3,000-4,000 every month. I've decided to not blow it all. So, I need a plan or a way to save and get benefi t from my money. I have heard a lot about SIP (systematic investment plan) in mutual funds, fixed deposits and other investment avenues. But I am unable to decide what is best for me," says Ladly Singh, a resident of Mumbai.

Singh may be confused but is on the right track. Financial planners say starting to think about your finances early is the most critical step towards financially securing your life. Financial goals are the groundwork for planning your saving, spending and investing activities.

So, the first step should be knowing your financial goals, which should be specific, realistic and action-oriented. "The right approach early in life can help you manage your debt, savings and investments with ease, besides giving you a good start on retirement planning, ultimately making you wealthy," says Gaurav Mashruwala, a Mumbai-based Certified Financial Planner.

This is especially true in times such as these when most people don't have job security. We bring six points that the starters must consider while working out their finances. Are you fresh into your job and confused how to invest?

Read on to find out how and where to invest.

1. SET GOALS:   Analyse your current financial situation. This involves understanding what you want to do with your money and how you want your financial future to look like. Life situations and lifestyle will play a big role in influencing these decisions. It's essential that you know how to make the best use of your resources.

Set your goals in three time frames - short-term, mid-term and long-term. Short-term: Has a time frame of a few months to one year. Mid-term: One to five years. Long-term: Involves plans that are more than five years away.

2. THE MUST-HAVES IN YOUR PORTFOLIO: There are tens of investment options. However, the first thing you must do is to protect yourself from risks, so that in case of emergencies you don't have to dip into your savings. Build your insurance portfolio before you invest even a single rupee.

Health Insurance: This should be the first priority. Having an appropriate health cover will keep your finances safe from huge hospital bills. is because even if you are healthy, an accident or an unexpected illness can make you bankrupt.

Also, remember that even if you have an employer cover, you must buy an individual cover too. This is because the employee cover will not be valid after you leave the job. Also, if you buy a cover after retirement, it will be prohibitively expensive. When selecting a plan, consider your likely healthcare needs and how much premium you can afford to pay.

Life Insurance: To choose the best life cover, calculate how much you would like your dependants to receive in case of your untimely death so that they can live comfortably. Among the many types of schemes one can choose from, financial planners strongly recommend term plans. These provide insurance for a certain number of years in exchange for fixed premiums. If the insured person dies during the period the policy is active, his or her dependants are paid a certain amount.

Term plans offer the highest life covers at pretty reasonable rates. Also, to save money, buy online, as online term plans are also cheaper and easy to buy. The best way is to get advice from a financial planner and then approach the agent. There are other plans also that combine features of both insurance and investment, such as unit-linked insurance plans and endowment plans, but their charges are quite steep.

Investments: Acquiring good financial habits right from the start is one of the best favours you can do to yourself. While the market has a large number of investment vehicles, choose what suits you the best.

"To start with, put money in a liquid fund as soon as your salary comes in," says Lovaii Navalkhi, Founder and CEO, International Money Matters. Putting money in liquid funds after paying for large monthly expenses will earn you a return, which is better than keeping money idle or in a savings bank account. One can withdraw money from liquid funds any time.

After this, move on to mutual funds. "Investing a certain amount in equity mutual funds through SIP is a good start," says Suresh Sadagopan, Financial Advisor and Founder, Ladder7. SIP minimises the risk of losses in equity markets, as your investments are staggered, and still helps you earn excellent returns. Investing in public provident fund is also recommended for slow but steady and secure returns. It is a long-term investment instrument like employee provident fund where you benefi t immensely from the power of compounding as you earn further interest on accumulated interest.

"Compound interest is the eighth wonder of the world. He, who understands it, earns it ... he who doesn't ... pays it," Albert Einstein is reported to have said. All you need in your portfolio is investment vehicles that have the potential to give returns that are higher than the inflation rate over long periods.

3. EMERGENCY FUND: Create an emergency fund before you start saving for other goals. "Keeping a certain amount at home or in liquid or short-term debt funds will prevent you from dipping into your investments during emergencies," says Mashruwala. This will save you from financial hardship and getting into the debt trap.

4. CREDIT CARD-NOT A FREEBIE: Credit card is an excellent resource but makes people overspend. Research shows our brain makes us spend more if we buy on credit and are more careful when paying in cash. "Use credit card as a payment mechanism and not to rotate money," says Mashruwala.

Having control over your credit habits will help you reach your financial goals with ease. The point to remember while using a credit card is that do not borrow more than what you can pay in a month.

5. BE FINANCIALLY FREE, WITHOUT DEBT: Get out of all your debts. The entire surplus you have right now should go towards paying off your debts. Making a minimum payment on a credit card loan and rolling it over can be a disaster as interests rates and penalties in such cases are very steep.

6. WORRY LESS, ENJOY MORE: Once you implement these ideas, remember that you're young. There is time for false starts and badly considered plans. Don't give up on investing because of mistakes.

By staying out of market and not taking risks, you will blow away your chances of earning big money with little effort. Investing is not rocket science, no matter how complex it may seem. It is just setting aside money and putting it at risk over long periods. In the 20s, the biggest mistake is not playing the game at all.

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