Stage 1: Our First Job

At this stage, you have just graduated from college, and therefore, your prime goal should be to learn how to manage your new cash flows. 

Some of the features of this stage include -

• The lack of any financial dependents on your income;
• A low bank balance;
• Low tax incidences; and
• The limiting of financial goals to yourself and your family members.

Suppose, you’ve graduated and just got your first real job. A critical concern at this time is managing your cash flow.

Here are some of the financial processes you should start focusing on to ensure your financial well-being-

I. Start saving

Although you might feel like you don’t have the money, even saving 10% of your income per month is enough to start planning for your retirement. 
If you’re 23 years old and in your first year of working you manage to save and invest ₹24,000 (₹2000 a month for 12 months), then at a growth rate of 15% per annum this ₹24000 will grow to ₹36.75 lakh by your age of 60.   

II. Insurance

You, most likely, have no financial dependents at this time so you might not need life insurance, but you should definitely opt for health insurance. 

This has dual benefits. 

• Your health is insured; and 
• You can claim a tax deduction of the premium paid, under Section 80D. 

III. Tax Efficient Investments

If your salary brings you into the 5% or 20% tax bracket, the first thing you should do is avail of Section 80C deductions. You can do this by-

Investing into an ELSS fund (equity exposure); and 

Making your PPF / EPF account (debt exposure), etc.. 

The limit of these deductions is ₹1.50 lakh under Section 80C. 

IV. Contingency Fund

Start building up a contingency fund for use only in case of emergencies. 

Typically this should be the equivalent of 6 to 12 months of your monthly expenses - depending on your personal risk appetite. 

You can set this aside into a liquid mutual fund to earn a better rate of return than your savings bank account. 

It is important to remember that the aim of this fund is to enable liquidity of money and not just high returns.