I have just started earning and do not know a lot of finance. What now?
Part 1: As someone who is new to investing and started earning, what should I do with my money?
Part 1: As someone who is new to investing and started earning, what should I do with my money?
Click to read the other parts:
First of all, a big Congratulations is due for having finally completed studies and landed a job that pays you money. After all the 15-17+ years spent in education have brought you to this point and it is a big achievement.
Annual income twenty pounds, annual expenditure nineteen nineteen and six , result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery - Charles Dickens
This is the most fundamental point: you earn money to spend it. The amount to spend is lower than the income. Whatever you do not spend this month goes into savings and the simplest place to save the money in your savings account - can be the same one you receive your salary. This also gives you a small amount of interest every quarter, around 3% or 30 rupees for every 1000 per year. This is not a lot (and you pay taxes on it) but it is good to get started.
This also leads to the first corollary of the money equation 1:
Corollary 1: If Expenditure > Income, then you have to rely on savings. This is also simple enough. If you earn 40,000 a month and have spent 35,000 on an average then per month you have saved 5,000. So after 6 months if you need to buy a 25,000 mobile phone then that comes out of your savings. So far so good.
This also leads to the next money equation: if you want to spend a lot of money, you need to save (letās call that Investment) for it.
Join the Arthgyaan WhatsApp community: You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.To get started on the first steps and DOs and DONāTs, have a look at this detailed post.
Expenses and debt payment is managed via the concept of budgeting. Since this is a large topic please refer to these three posts which cover this in detail:
This is the second term of the money equation and deals with how you scale savings in case you have a large amount to be spent on a future date? A few examples are
All of these are called financial goals and they have 3 main parts to each: the purpose, the horizon and the cost today:
Purpose | Horizon | Cost today |
---|---|---|
Two wheeler | 9 months | 50,000 |
Trip | 1 year | 40,000 |
Course | 2 years | 200,000 |
There can be bigger and longer goals as well like these:
Purpose | Horizon | Cost today |
---|---|---|
Dream vacation | 3 years | 3 lakhs |
Buy a car | 5 years | 8 lakhs |
Buy a house | 8 years | 20 lakhs |
This is all done via Investments and since each investment is for a goal it is called āGoal-Based Investmentsā
If you have heard of mutual funds, stock markets, FD/RD, Provident Fund, Insurance and tax-saving - all of these will be covered next.
This article shows how a double-income couple with a 2-year old reach their FIRE dream at the age of 50.
This article shows how a double-income couple with a newborn child can invest for their future goals of FIRE and real-estate investment.
This article shows how a young just-married couple can invest for future goals using the Arthgyaan goal-based investing tool.
Did you welcome a bundle of joy in your 40s? This article will discuss ways of planning the childās (and yourās financial future)
This article shows how a very typical salaried couple with one child can invest for future goals using the Arthgyaan goal-based investing tool.
Quickly figure out if you should prepay your home loan vs investing in the stock market?
Published: 23 March 2021
8 MIN READ
Part 2: As someone who has heard about goal-based investing, how do I get started?
Published: 29 March 2021
6 MIN READ
This article shows the historical performance of this fund as an example of a long-running gilt fund to demonstrate the risk and return in a gilt fund.
Published: 7 June 2023
3 MIN READ
This article explains if Indian investors should consider investing in gilt or government securities mutual funds for their goals.
Published: 4 June 2023
4 MIN READ
1. Email me with any questions.
2. Use our goal-based investing template to prepare a financial plan for yourselfDon't forget to share this article on WhatsApp or Twitter or post this to Facebook.
Discuss this post with us via Facebook or get regular bite-sized updates on Twitter.
More posts...Disclaimer: Content on this site is for educational purpose only and is not financial advice. Nothing on this site should be construed as an offer or recommendation to buy/sell any financial product or service. Please consult a registered investment advisor before making any investments.
This post titled I have just started earning and do not know a lot of finance. What now? first appeared on 28 Mar 2021 at https://arthgyaan.com