College students and job seekers get an job offer by their talent and skills. They are technically strong and strong in soft skills. But they are not aware of financial knowledge to become rich after accepting the job offer. In this post, we would discuss what to do after getting a job and what to do after accepting a job offer to become smart and become rich.
1. Start your investment early:
Investment early would give you better return in long term. Start with 20% to 30% of your monthly income in investment such as mutual funds, stocks and gold financial goals and duration. Align your investment and goals. Start mutual funds with your first month salary.
Financial goals is less than 3 years should be invested in debt mutual funds. Financial goals more than 3 years should be invested in Blue-chip mutual funds. Take the case of Ram and Bala. Both of them started working at the age of 25. While Ram started investing from his first month salary, Bala started at 30. Both of them invested similar amounts, Ram starting with Rs. 10,000 and Bala with Rs. 10,000.
Bala with monthly 10,000 rupees with yearly 15% interest, at the end of 30 years, your investment of 36,00,000.00 will grow to 7,00,98,206.
Ram with monthly 10,000 rupees with yearly 15% interest, at the end of 35 years, your investment of 42,00,000.00 will grow to 14,67,71,802.
Best funds to start for long term goals:
- Axis Bluechip Growth Direct Plan,
- Mirae Asset Large Cap Growth Direct Plan,
- Kotak Standard Multicap Growth Direct Plan,
- Axis Focused 25 Growth Direct Plan,
- SBI Small Cap Growth Direct Plan,
- Mirae Asset Emerging Bluechip Growth Direct Plan
2. Don’t consider credit card as asset. It is double edge sword in your financial planning.
Once you get your monthly salary, you will get a call from your bank to get a credit card. They would explain all the advantages of the credit card and 45 days time to pay back the spending, Reward points, no annual fees. But they would miss the important point on credit card spending, that is very high interest rates. Credit card interest rates is as high as 36% to 52% per annum. Do you know SBI pays 6% annual interest for fixed deposit.
Fixed deposit interest 6%, credit card interest 42%.
In case you are unable to track your credit card spending and not following your credit card monthly statement, do not take the risk. Avoid credit cards, still you can manage your expenses.
3. Do not avail personal loan for Planned expenses:
After one year of your professional experience, you will get offer for personal loan. Meantime your parents want to alter the home or you plan to buy costlier gadgets. Personal loans are 11 to 16% interest and easy to pay in EMI. personal loan only for unplanned expenses and emergency expenses. In case you require money for marriage or to buy bike or home alteration, start allocating money for each goal in mutual funds SIP. Select mutual funds and start investing. It would avoid unnecessary paying 14% interest to personal loan and accumulate wealth as well.
Convert EMI to Mutual fund SIP for planned expenses.
4. Investment vs Saving vs Insurance:
Investment is wealth accumulation tool. Mutual funds, stocks, gold and real estate are considered investment. This is to create wealth and to become rich. It should give at least 12% to 20% returns in long term.
Saving for emergency and risk free instrument. Fixed deposit, investing in bonds are saving. It would give 5% to 8% returns annually. Maximum 6 months of your expenses should be in saving. Gold can be considered as saving as well. It would help in case of emergency by pledging to get money.
Insurance is for your family in case of unforeseen events. Different kinds of insurance available in the market for different purpose Term Insurance provides a specific amount to the family, only in case of death of the insured. Life insurance policies also offer the sum assured in case of death. However, they also have an investment component and it would give 3% to 5% returns in long term. It is not wealth creation tool. Health insurance covers costs related to medical expenses and hospitalization of the insured. Many employers provide health insurance to their employees by default. Understand the health insurance offered by your organization and take top up if required.
After understand the different financial instrument, start your financial planning. Your insurance premium should not be more than 10% of your monthly income. Insurance premium should be 5% of your monthly income and max 10%. Do not keep all your monthly saving in insurance. It would never make you rich.
Insurance agents, your parents, your father’s friends all would push you to fixed deposit and insurance. But these are not a wealth creation instruments. So act smartly.
5% insurance, 15% saving and 30% on investment from your first month salary.
5. Learn basic about stock markets and mutual funds:
You have studied 7 subjects in 7th standard. Now why are you refraining from learning stock markets and mutual funds. It is easy to learn. Spend two hour per week and start reading financial basics. Start with small investments. You do your own research and start investing. Read economic times and business standard dailies to understand basics.
6. Buying a home too early :
Buying home is a dream for Indians. Owning a house considered as a social status or as investment in India. But buying home without considering important factors would impact your financial position and personal finance heavily. Recent times bank gives maximum 85% to 90% of home property value as loan. Don’t fall into financial trap by taking home loan. Buy home after accumulate 30% to 50% for initial payment. Don’t take personal loan for initial payment. Don’t buy home too early, because it would hurt you heavily by paying more interest. Read the following posts on home property and home loan details. It would give you an idea on home property.
Home loan EMI or Mutual Funds SIP? You should have better one.