When you start earning after years of hard work, you feel free to spend your own money on things you want. But this is the moment when you need to have an idea of priorities and proportions, to prevent mistakes at this stage. Here we discuss, what all should be prioritized.
Expenses and Savings
At a young age, obvious consumption is usually a priority. Things like expensive brands, eating out, swiping credit cards, showing your ability to afford, etc., all have a bait, and that’s natural. Enjoying your life is important, that’s what you work for. However, do not forget the sense of proportion that we mentioned earlier. Try to save 30% of your net-of-tax revenue. This is not a difficult question; you do not need to earn so much to save. Many people survive on incomes lower than yours.
If you cannot save 30% of your income, you must question your expenses one by one, and the answer will come. To achieve this goal, non-essential expenses should be limited.
Some people fall victim to the “debt trap”, i.e. spend more than earnings. This happens with easy availability of credit cards, EMI’s, personal and other loans, etc. Also, repaying a loan becomes a burden for you when you need to take a loan to service another loan. It is important to bookmark your expenses and stay within your means. Some people manage the value of their credit card by determining the time and expense of cash flows so that the bills are paid by the due date, and there are no overdue amounts or interest.
While this is manageable proportions, you can try it, but it is important to save 30% of your net-of-tax revenue. The interest rate you pay on loans, EMIs, or credit card payments will be higher than what you earn on your investments. Instead of helping others (loan providers) make money, help your future by saving and investing.
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Buying v/s Renting Your Accommodation
Although there is an emotional aspect to owning a home, it’s best to wait a few years for your career to stabilize. There is a calculation here, in addition to the emotions of owning your home. That is, rental yield. If you own a rented apartment and rent it out, the amount of rent that you will receive annually will be much less than, say, what you earn from term bank deposits.
Although commercial property prices are reasonable, the return from residential rental is 2-3%. Although renting your property is not remunerative, on the other hand, if you use a rented apartment, you will be better off. In the early stages of your career, prioritize, saving 30% of your income. In case of temporary job loss or other instability, mortgage loan.
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EMI Becomes Burden
The counter-argument to this is that instead of paying rent, use it for EMI so that you own the property. Once you have built a safety net so that you can resist the temporary loss of work and visualize the stability of your career, you can go for it.
In the early stages of your career, it is advisable to have as little weight as possible – this can be an housing loan EMIs, other loan EMI’s, credit card payments and much more. Also, you need to keep discipline in your expenses so that everything gets out of hand and you can start saving money for your retirement. The sooner you start, the more “compounding effect” you will get on your investment.