Enjoy The 1st Salary Rush, But Don't Blow It All

As the college session comes to an end between April and July, the hiring season begins for fresh graduates or first-time employees. The number of people employed in India jumped by 1 million to 404 million in May 2022, as suggested by data from the Centre for Monitoring Indian Economy. Many of these are, perhaps, first-time employees.

Every employee, young and old, is familiar with the rush that receiving the first pay cheque entails. It’s usually a mix of emotion and excitement, and also brings in a sense of achievement.

The urge to spend is high, but the truth is that where and how you spend will help lay the foundation for your financial future. “Most middle-class young people who have just entered the job market have an aspirational mindset and, hence, the urge to spend their entire salary to fulfil their desires is high. But if they allocate at least 20 per cent of their salary towards investment and spend the rest on their aspirations, it will prove to be beneficial. They might not understand the importance of doing this immediately, but small steps make a big impact in the long run,” says Anup Bhaiya, director, Money Honey Financial Services, an Amfi-registered mutual funds distributor firm in Mumbai.

What can work is striking a balance between your long-held desires and a financially secure future.

Cater To Your Needs

Among the first things you would want to do after receiving your first salary would be to fulfil your own desires, such as buying your favourite phone or bike, and spending on your loved ones.

Parul Maheswari, a Mumbai-based certified financial planner, says one can work towards these aspirational goals but for that, they need not spend everything at one go or borrow immediately.

“They should not take loans right from the first salary, since this may create an additional burden on their finances. They should live within their means and start saving on some portion of their salary and invest that in liquid and ultra short-term funds, fixed deposits, and others. After they are able to save enough to fulfil their desires, they may go and buy that expensive depreciating asset, such as a phone or a bike,” she says.

Gift Your Family Smartly

Many also feel the need to do something for their families. After Deepanshi Arya, 21, joined as a management trainee at Microtek International in March 2022, she took her family shopping. “I let them buy whatever they wanted and we enjoyed our day out,” says Deepanshi, who felt satisfied that she was able to do something for her family.

Deepanshi has always wanted to give a part of her salary to her parents and that is what she has started doing ever since she started working.

There are other ways to show gratitude and take care of your parents, too. One of these is to buy a health insurance policy for them. If you are a young working professional, your parents would likely be middle-aged, and if they don’t have individual health insurance already, this is the time they should have it.

This can also give you tax benefit under Section 80D of the Income-tax Act, 1961. According to Ankur Aggarwal, a Bengaluru-based chartered accountant, the health insurance premium of parents paid by an individual is eligible for deduction up to Rs 25,000. If the parent is a senior citizen, then the deduction limit is up to Rs 50,000. Additional deduction up to Rs 50,000 for the medical expenditure of senior citizen parents is also available, he says.

Settle Your Debts

If you have an outstanding debt, say, an education loan, then settling it as quickly as possible is something that merits your immediate attention. Then, a lot of young people have accounts with buy-now-pay-later wallets or accounts. If you have pending dues, it makes sense to take responsibility and not let them spiral out of control.

Although there is a grace period before you start repaying your education loan after graduating, you can start repaying immediately as well after checking with your bank. Dewin P. Kothari, an Amfi-certified mutual fund distributor, says that this may be better than saving in instruments that offer lower returns, as an education loan typically carries a rate of interest in the range of 9.5-11 per cent.

What can help you further is an income and expenses sheet, where you can allocate your expenses, equated monthly instalments (EMIs) and savings accordingly.

Start Investing Early On

Amid all this, don’t forget to build financial discipline. Start investing. It’s a habit that will serve you well in future.

You can start with investing in simple products, such as the Public Provident Fund (PPF) and equity-linked savings schemes (ELSS), both of which offer tax deduction under Section 80C of the Income-tax Act, 1961. “If the young earner has little to no family responsibilities, then he or she can start investing in various financial instruments. If they are specifically thinking of getting into equities, flexi-cap funds can be a good start for them. If someone is earning income above the taxable limit, they can also invest in equity-linked savings schemes (ELSS),” says Bhaiya.

Also, it doesn’t make sense to wait for a higher salary to start investing. “Thinking that I will invest when I have surplus never works. In all probability, that would never happen, because as you age, your responsibilities and expenses also go up,” says Bhaiya.

Numbers also show that the earlier you start investing, the better will be your returns and so will be the likelihood of achieving your goals.

Let’s say, you invest Rs 1,000 in a monthly systematic investment plan (SIP) for the next 50 years, you will have Rs 3.06 crore by the time you retire, assuming a compounded annual growth rate of 12 per cent.

This is also a good time to buy health insurance for yourself even if your employer is providing one, as circumstances could change—a person could change jobs or take up freelancing. Abhishek Poddar, co-founder, Plum, an employee health insurance platform, says that insurance is not a priority for 20-year-old earners, which is not advisable.

Plan For The Future

Having a steady source of income and saving consistently can help you plan for the future—whether it is pursuing higher studies or upskilling to make yourself more relevant to the profession you have chosen.

Prateek Shukla, co-founder and CEO, Masai School, an edutech company, says that young college graduates join the workforce without realising real-world demands. “To keep up with the dynamically ever-developing technologies and market trends, they need to re-skill or up-skill themselves depending on their job functionality,” says Shukla.

This can give you the required push in your profession. “We have seen working professionals studying three hours a day after work and tripling their salaries after 30 weeks of re-skilling. Investment in developing your expertise or gaining new competencies will pay dividends in the short- and the long-term,” adds Shukla.

Pankaj Shaw, a young graduate, who works as an intern in a chartered accountant (CA) firm, has enrolled in a few online courses to upgrade his skills. “This will open up my avenues for a better job and future,” says Shaw, who uses part of the money he earns from the internship to pay for these online courses.

Deepanshi, who joined the workforce after her graduation, plans to fund her higher education with her savings. She plans to apply for an MBA after gaining a one-year work experience. She hopes to achieve her goal, thanks to the fact that she is careful with her money.

What about you?

With inputs from Shruti Bhatia