Your first salary is your stepping stone to a stable financial future

Your first income opens a gateway to financial independence. But how you map your finances from there on will decide the course of your life.

One’s first salary is a watershed moment in one’s life. It may be a paltry sum or a handsome one, but one is never going to forget it for as long as one lives.

In many ways, the first salary marks a significant departure from when one is a youngster, to the point where one is considered a ‘grown up’[1]. It is a moment when one steps into the world as an earning member of society that can pay expenses and become responsible for themselves. If the salary is high enough, the person may even begin to shoulder the responsibilities of the household.

Those who earn their first salaries are normally in their early 20s, with very few responsibilities. They are single, and marriage and kids are a distant possibility. Plus, they have an income that they can spend on shopping, partying and travelling. The 20s are the best decade of one’s life because one can be carefree and do whatever one desires with one’s income.[2]

Ironically, this same decade of one’s life sets the tone for what is to come in later years. How one manages one’s finances from the moment one gets their first salary is important. The spending habits one inculcates in this decade are often indelible for the rest of the one’s life – so if one is thrifty from the moment they get their first salary, chances are high that they will be thrifty all through their life.

Spending wisely and saving much…

The 20s are also a time for many changes in life. One begins to take responsibility for the household and pays several bills. Then one decides to get married and set up their own home. One might even have a child by the time they are 30, further adding to their responsibilities.

This is why we mentioned earlier that being cautious with one’s money is important, right from the first salary onward. Along with responsible spending, one must also save money every month.[3] Savings help finance a variety of future goals and remove any undue pressure one might feel at that point, to raise money suddenly. They also provide peace of mind when one knows that they have a large corpus at their disposal in case an emergency strikes.

But creating a large savings fund is not a simple task. It requires tremendous discipline to save money every month, especially in the face of expenses related to a growing family. Often, one’s income is not able to pay all the necessary expenses of the month, so setting savings aside can become quite difficult. And yet, it is the only way to create financial security.

How to create a large savings corpus

We recommend following this savings plan for a period of 60 days. It is said that something done for over 40 days becomes a habit, so let’s try and create the savings habit for two calendar months thus:

1 Take stock of your income and expenditure.[4] How much money do you make every month? How much of it is spent on necessary items like utility bills, maintenance, work commute, groceries? Based on the remainder, how much money can you set aside for the month and not need to borrow? This component of money is your savings.

2 Start the month by paying yourself first. The day you get your salary, first divert a portion of it towards savings. It may be Rs 2,000 per month or Rs 10,000, depending on your salary and how much you can reasonably set aside. This sum of money MUST be set aside at the start of the month, whatever else your expenses may be.

3 Open a savings bank account. You need a safe place to deposit your savings and it cannot be in the form of cash stored at home. Opening a savings bank account helps you keep the saved income aside and also earn quarterly interest from the bank[5]. You can open a zero balance account to avoid the hassle of maintaining a minimum balance every month. Also, the savings account opening process is quite simple – your bank can help you open the account online and the account becomes operational quite soon.

4 Cut down unnecessary expenses. As tempting as it is to eat out often, go out for movies and shopping with friends and take a cab to work every day, these activities are a huge drain on your resources. For two months, try eating packed home cooked meals, using public transport to commute to work and also curtailing shopping and going out to once a fortnight – and measure the difference it makes to your finances! You will end up saving a lot of money every month, which you can divert to your savings account.

5 Use a debit card for spending. It might seem like a good idea to use a credit card for all your spends, but it can also encourage recklessness in some users. Handling a credit card is a matter of great responsibility, because it is easy to overspend and rack up debts. You may certainly keep a credit card, but we recommend using a debit card for all your bill payment, shopping and travel needs. The debit card sets a cap on your spending since you can only spend whatever money you have in your bank account.

Follow this plan for two months and see the difference it makes to your savings. If you follow this simple plan through life, you will find that you are always financially stable even in the face of emergencies.

Keywords: saving account opening, open savings bank account