Financial Planning for Beginners

Financial planning for beginners is a very difficult task. A lot of people find it difficult to begin their financial plans. If you are one of those who is finding it challenging to start planning your finances, here is how you should start.

Start saving first

The first step to get your finances in order is to start savings. Unless you have the money with you, how will you invest? How do you start saving? If you are a salaried individual, you know your income.

How much should you save? Though there is no perfect answer to it, at the bare minimum, you should keep 10% of your monthly income aside when you are just getting started in your career. The more the better, if your income is considerably higher than your expenses. If you are unable to keep aside any amount, you should evaluate your expenses and see if you can cut down some of the expenses to meet the savings goal. The easiest way to save is to keep money aside from your salary as soon as it comes into your bank account. For instance, if your income is Rs50,000 per month, just keep Rs5,000 (10% of the income) aside. It may look like a small amount, but in a year you will have an amount of Rs60,000—and this is assuming you earn no returns on these savings. You can either leave this money in your existing bank account or open a new bank account and move it there, if you fear that you may not be able to stop yourself from dipping into these savings.

Start investing the money you save

Once you are on track with your saving habit, the next step is to start investing. There are many who find it easier to save but difficult to invest. If you are at this stage of your finances, start looking for investment products immediately.

If you are a first-time investor and think that managing deposits would be easier for you, then open a bank fixed deposit or a recurring deposit (RD) at your bank.

A lot of banks give you the option to transfer money to your fixed deposits through net banking. Such deposits are the easiest to start with. Now, if as a first-time investor, you want to invest in mutual funds, the first thing to do is to not get overwhelmed. “There are two parts to investing in mutual funds—procedural and investment. Today the procedure to start investing is easy due to Aadhaar-based KYC. 

Say if you are able to save Rs5,000 every month. Use 50% of the money to invest through a systematic investment plan (SIP). As you gain confidence, you can increase your SIP. An SIP is one of the easiest ways to invest in a mutual fund and gives you exposure to equity. To begin with, you can look at balanced hybrid mutual fund. The reason—it will give you the required exposure to equity and you should treat it as an educational endeavour rather than an investment

Start setting goals

It is understandable that in your early 20s, when you are starting your career, as a first-time investor you may not have concrete goals such as buying a house or investing for your children’s educational needs. In such circumstances, you can look at investment and savings for wealth creation.

Though you may not have goals now, later on you will have some larger goals to meet. To face such situations, you would want to discipline yourself and inculcate the habit of investing. To do this, you can start with setting small expense goals, and setting money aside, say for buying a phone or going on a vacation in the next 6 months.

Don’t wait anymore

Get started with the money that is available in your bank account. Treat the procedure of investing and saving as something that you would do to shop for a nice dress or a good pair of shoes for yourself, so that you would look great in the future.