Earning your first salary is often an exciting moment. After years of being financially dependent on families or loans, getting your first big salary is incredibly exhilarating. You are no longer confined to waiting for others to provide you money since you make your own!
If this is the first time you’ve ever gotten a salary then chances are, you can’t wait to spend it. Understandable. You’ve earned with it your own effort and hard work, so splurging on yourself or your loved ones is expected. However, the way you spend your first salary could also be a tell-tale mark of your financial planning.
In this article, we have provided practical ways to make the best of your first salary. In true SyncWealth fashion, our tips will help you in proper financial planning and wealth growth from the start.
Budget is a scary word for most people but they are very important and for a good reason. To make it easier for you, however, consider the 50/30/20 rule.
Much like the JARS System, the 50/30/20 Rule requires you to split your income into separate portions. 50% of your salary should go to your expenses such as bills, food, rent and other basic necessities. 30% can be used on the fun stuff – basically things that you want to splurge on since you obviously deserve it. And the last 20% should go to your savings and investments.
Having a budget doesn’t necessarily equate to a strict no-fun lifestyle. If anything, it makes it easier for you to prioritize since you are able to gain control of how you spend your money. Failure to plan can lead to you running out of money before the end of the month, which can potentially result in you borrowing to survive until payday. Now that is definitely not fun.
We have established the importance of emergency funds here but we will stress it once more because this is really important!
Emergency funds are funds that you use when you encounter unpredictable circumstances. Imagine a situation in which someone gets into a minor car accident and to pay for the repair work, they have to use their main income. By the end of the week, they have absolutely no money at all to survive the rest of the month.
This is incredibly common even between fresh graduates and people who have been in the workforce for a while. To save yourself from falling for this mistake, save some of your salary to another bank account to serve as your personal emergency funds. Not only will this save you in difficult moments, you won’t be too stressed out when it happens. Therefore, it is advisable to create an emergency fund, which you should try to build until it is at least three to six months’ worth of income.
One of the biggest debts fresh graduates have are student loans. It’s impossible to clear your student loans immediately but don’t delay it either.
Not paying your student loans will have big consequences whereas paying it on time or even paying extra has absolutely no penalty. Which is why you should begin as soon as you start earning a stable salary. Based on your personal budget, if you feel like you can afford to pay extra for a particular month then do it. If you can’t, just continue to stick to a lean monthly budget, or use some of your savings to clear the debt. The trick is to keep paying on time. Paying late can result in penalty fees or late charge fees which will accumulate your debts and affects your credit score rating too.
If you are also juggling other debts such as car loans, be diligent. Consider the snowball method, a repayment method that can be intense, but helps you to clear up all your debts really quickly. If you find that particular method impossible for your situation, just setting aside funds each month to service your commitments would suffice.
This tip is understandably not fun at all but sacrifices are always required if you want to reap the rich benefits in the long run.
The moment you start receiving a salary, you need to start thinking about your insurance needs.
Having the right insurance in your youth is critical because life is, more often than not, unpredictable. And when things don’t go the way you want, it can affect your finances significantly.
With the right insurance, you will be able to save up some money for future financial goals as well as ensure financial security for dependent aging parents or other family members. Plus, insurance also covers medical treatments in times of emergency, and provides you maximum protection while abroad. But first step to getting an insurance is to recognize your needs.
If you have family depending on you, a term-life insurance would serve you best. If you like to travel a lot, then opt for a good travel insurance. And if you seek a safety net for your medical needs then consider a medical insurance.
There are many other insurance plans to carter each of your needs so don’t forget to do your research. You can check out RinggitPlus to compare all existing insurance plans in Malaysia, and Clearly Surely for Singapore.
For most youth, investment is a foreign concept. However, lack of basic knowledge of investment shouldn’t stop you from growing your wealth early.
Take advantage of compound interest by investing as soon as you can. Compound interest is the interest the investor earns on his original investment plus all the interest earned on the interest that has accumulated over time. In other words, investors who start early can earn interest not only on their initial investment, but also on the interest that they have earned in earlier years.
Simply put, people who are younger have the advantage over those who start investing later as time is on your side.
Another reason to invest now is that it puts your money to work. Simply saving your money in the bank and leaving it untouched over the years is dangerous because inflation will slowly eat it away or service charges increases. But if you invest the money instead, you can earn a much higher return.
Our tips and suggestions may seem intense to you especially since you’ve only started working. We understand. It’s easy to believe that you’re young and you will have more time before you need to plan the next five decades of your life.
However, it’s always better to be ahead of the game by starting your journey to financial freedom now!
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