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Received Your First Paycheck? What Next?

by Olufisayo
Received Your First Paycheck

Picture this scenario. You spend a few years in college, gain professional skills and apply to about 100 jobs. You open your mailbox. You are shocked. You receive 50 rejection emails. You shout expletives at your laptop. Fast forward a few months, you receive an offer from a reputed company. You have clarity. You are excited to dive head-first. You accept the offer. For all purposes, your first paycheck trumps the good, the bad, the violently ugly and scary.

What do you do with your first paycheck? Party hard? Of course, you should go crazy all night. But stick around. Lie back and think of life. You should meticulously plan your money, career and life. Otherwise, instead of partying hard, you’ll be hardly partying!

Don’t worry. Everything is going to be fine.

Read on.

Received Your First Paycheck

#1: Financial Planning

If you are keen on achieving your life goals – both short-term and long-term, then financial planning is mandatory. Financial planning is all about building a personal roadmap that assists you in your financial well-being.

Any life goal that takes not more than 5 years to be fulfilled is a short-term goal. For instance, buying a four-wheeler is a short-term goal. Retirement is a long-term goal.

The following parameters should be taken into consideration:

  • IAL – Income, Assets and Liabilities
  • Life goals
  • Risk appetite

A well-drafted financial roadmap helps define the best way to save income tax, defeat inflation, boost savings, maximize cash inflow, minimize cash outflow (expenditure) and secure your retirement life.

Make sure that you review your plan periodically.

#2: Time to Invest

Your first paycheck is special and so is your first investment.

There are many investment instruments. A few of them pander to your short-term goals. Rest, help you achieve your long-term goals.

You may be familiar with bonds and fixed deposits. Let us introduce you to ULIP insurance. ULIP stands for Unit Linked Insurance Plan. ULIP is an investment instrument and comes with life insurance feature. If your investment horizon is 15 years or more, it’s safe to bet your hopes on ULIPs.

A vast majority of ULIP insurance plans are low cost. This makes them attractive. Further, investing in a ULIP plan is the best way to save income tax as the maturity benefits are entirely tax-free.

Policyholders often draw analogies between mutual funds and ULIPs. Let us explain.

Equity-oriented mutual funds attract long-term capital gains tax. This isn’t the case with ULIPs. Moreover, ULIPs don’t attract dividend distribution tax. And yes, reputable insurers like Max Life Insurance offer a provision of switching between different types of funds – aggressive (Equity), conservative (Debt) and balanced (A healthy mix of debt and equity).

Many insurers don’t charge a penny on the first 5-6 switches. Read the terms and conditions carefully.

#3: Combating Contingencies

Expect the unexpected things to happen in life. Dwindling fortunes, mounting debts, unemployment, etc., are contingencies. To combat contingencies, it’s recommended to have an emergency fund.

Your emergency fund should contain at least 6 months’ worth of expenses. There’s no one-size-fits-all standard. It’s all about investing in a liquid fund. The last thing you want is your money sealed in illiquid investment instruments.

The next step is to establish a contingency budget. If you are an entrepreneur, allot at-least 10% of your earnings. Budgeting issues can delay your projects.

Identify all potential risks – scheduling, health concerns, etc. Draft a budget and purchase related insurance plans accordingly.

#4: Manage Your Debts

Utility bills – rent, electricity, internet and food bills should be cleared. You may not feel like spending a penny on utility bills. But believe us, they may transform into an overwhelming burden if you don’t clear them immediately. Penalties are huge. It’s better to avoid being penalized.

If you have an educational loan or a personal loan, it’s time to set your sight on loan repayment. If you have debts, you cannot be happy.

#5: Cherish

Your first paycheck isn’t all about money. It’s an important milestone in your life.

Remember – only if your near and dear ones are happy, you’ll be happy. Arrange a small dinner party at your house, invite your friends, celebrate with your parents, gift an item or two to your siblings and donate some money for a social cause. If you believe in God, make a visit to a temple. Thank the almighty. Be loyal to yourself. Keep learning. Acquire new skills.

Do this on a consistent basis. Prosperity is definitely in the offing. Stay invested. There are many more paychecks to come. Cheers!

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