Money is an important aspect of life. Our whole survival depends upon how we manage money. But still there is little focus on teaching money management to the next generation. While the parents do try to give some insights into some of the facets but the guidance comes only in pieces. The youth today needs to be guided and trained on keeping a holistic approach towards this important requirement of life. Following are the few finance lessons that need to be learnt by the young who have just embarked on the journey of making a career after their college.
Learn the art of budgeting
Budgeting is a highly important aspect of money management. While all know this but few know and master the art of effective budgeting. Art of budgeting lies in recognizing expenses for coming months rather than just for one month. Most of the people go wrong when they are unable to factor an expense that they may have to pay after few months. For example, an insurance premium, any annual, half yearly or quarterly subscription. It is important to keep these in mind while creating budget since not factoring these, one is tend to fall short of funds in the month when these will come due. The budget must also keep aside some money for entertainment or a hobby that the person may be interested in.
Fix a certain percentage for saving
Post creating an annualized budget, one needs to check on how much surplus is he left with. Saving carries an equally important place as the budgeting. Most of the times the youngsters do not make this part of their financial habit. Only the money, if at all they are left with, in the end of the month goes towards saving. This is not how they will be able to create a large pool. A certain percentage of income has to go towards savings. The best way would be to automate savings as soon as the salary comes. This would help them see their savings grow over years. An early start on this is the key to creating wealth.
Create a contingency fund
Creating a contingency fund is also of high importance. One can either start to have a small amount kept aside, over and above the automated saving, every month or can just let the money first invested into tis fund before investing for long term wealth creation. As a thumb rule, the contingency fund should have at least six months of net income. This money should be invested in instruments where it would be available with little hassle, like a mutual fund or a fixed deposit. This fund will help in keep one float through the tough times and meet the daily requirement and obligations like loan EMIs. In case of non payment of the EMIs one will get listed in the loan defaulter list.
Do not splurge on credit cards
As one starts to work, this is the first credit instrument that one gets. And since it is easy to get multiple credit cards, the total limit on all cards put together may be far higher than the monthly income. It is highly important to keep a check on the card spends. Over spending on credit cards has been one of the major reasons for the young to get into debt trap. Only the amount that can be paid in one go should be spent and nothing more than. Not paying the total outstanding in one go attracts very high interest and will only eat into one’s funds.
Create credit profile
A focus to create a good credit profile is also of high importance. Availability of credit since can have a lot of impact on meeting one’s financial objectives, it is important for one to continue work towards managing the credit profile. A good credit profile will not only ensure availability of credit but also impact the terms and interest at which one would be able to get those loans. If the college graduate has an education loan then he must ensure that the EMIs are being paid in time without even a day’s delay. Any credit card or a consumer loan that he would take must be paid back in time. Timely repayment will help in building credit profile.
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