We eagerly await our salary to get credited to our bank account. Alongside the compulsion to pay for our basic needs such as rent and utilities, there’s also the urge to splurge from this monthly treasure. What’s the ideal way to use our salary, and what should be the priority of our spends? There’s so much to do, so many needs and wants, and therefore discretion needs to be exercised in order to meet your expenses as well as secure your future. If you need financial advice on how to best use your salary, here are some thoughts.
Start With Monthly Budgeting And Stick To It
One of the first things you should do is work on a budget that tells you how much you should save, invest and spend. The art of spending money well along with effective saving and investing will help you in fulfilling your life’s crucial financial goals. When your salary arrives, make a list of your regular and discretionary expenses, and earmark an amount for saving and investing. It is easy to create a budget but sticking to it is tough. Keep at it, be resolute, and you should see the results of your dedication soon enough.
Save And Invest
The part of your salary you will save and invest now will secure your financial future. You should ideally allocate at least 20% of your income for savings and investments. To let your saved money grow effectively, choose investment products as per your age, income, risk profile and financial goals. If you’re finding it difficult to save money, start a recurring deposit (RD) account which automatically saves a fixed amount in a bank deposit every month. When the RD matures, put the money into a fixed deposit or invest it in the securities market. Similarly, start a mutual fund SIP to fund your various life goals so that money from your bank account is invested into your picked fund automatically each month. You should also build an emergency fund that can help you with tide over contingencies like job loss or medical emergencies.
Settle Existing Debts
Managing your debts should be one of your top priorities when your salary arrives. Set aside the amount you need for your debt repayment in the beginning of the month. Make a list of your existing debts. Prioritise them as per the rate of interest and due dates. Automate your payments to avoid missing deadlines and having to late payment fees. Credit card bill payment should be cleared before the due date to avoid high interest charges along with penalties. Make timely repayments with your salary a habit to keep your finances and credit score healthy.
Get Yourself Protected, Buy Insurance
Insurance works as protection that mitigates the financial risks arising out of emergencies like disease and death. Term and health insurance policies are a must for all salaried individuals with dependent family members. Often people remain oblivious to the enormous benefits that come with insurance as they do not see them as returns-generating instruments. But insurance is beyond investment. It is that financial instrument that protects you and your family financially during emergencies. Term insurance works as an income replacement tool for your family in the unfortunate event of your death. Health insurance helps in dealing with rising medical costs during expensive treatment and hospitalisation. Buy or step-up your family coverage after assessing your family insurance needs.
Upgrade Or Learn A New Skill
You can also use your salary to learn a new skill or upgrading the existing one. An extra degree, a diploma, or even a specialisation certificate can help you grow in your career. You can also use your newly learnt skill for earning additional income and lowering your financial burden. This way you can use your salary for investing in yourself to reap great results.
Finally, allocate some amount of your salary to some recreational activities and a healthy mind. However, always remember to have a firm handle on your lifestyle and entertainment expenses.
The writer is CEO, BankBazaar.com