How do I invest my first salary?

You are just out of college and have got your first job. You have been eagerly waiting for the salary credit message. When you read the magic words “Your Salary has been credited”, you immediately start planning on spending it.

There is an urge to treat yourself with that high-end dinner or buying an expensive watch. It follows with an aspiration to do some lifestyle spending or  buying a car. Saving would the last thing on your mind.  But the fact is the sooner you start investing, the better.

All you need to do is save just 15-20 percent of your take-home salary and the rest can be spent on buying everything you have always wanted to. As Warren Buffet has said, “Don’t save what is left after spending, spend what is left after saving.”

Here are a few things you can do with your first paycheque:

 Build an Emergency Fund

First things first. As soon as you get your salary, start creating an emergency fund by setting aside a small amount every month. The thumb rule says that you should have at least six months of your expenses set aside as an emergency fund.

According to your risk profile, you can either start by investing in a liquid fund or by opening a recurring deposit or RD with a bank.

Liquid funds invest your money in bonds and money market instruments with maturity no longer than 91 days. It is a good alternative for the savings account and generally give higher returns than bank FDs and RDs.

Identify your long and short term goals

The second step should be to identify your long and short term goals. The short term goal could be something like travelling abroad two years down the line while long term could be buying a house or saving for your retirement. Once you identify your goals, the next step should be to start goal-based investing.

 Start SIP

Considering equities tend to give higher returns over the long term, you should immediately start an SIP or Systematic Investment Plan. What is exciting is the fact that it can be started with an amount as low as Rs 500. To give you an idea if you invest just Rs 5,000 every month in an equity diversified fund you can build a corpus of around Rs 2.17 lakh ( at an assumed rate of 12%) in just three years. Isn’t it a good example to show how a journey of thousand miles begins with a simple step.

 Open PPF Account

PPF is one of the traditional ways of investing but yet one of the best ways. It comes with a lock-in period of 15 years so sooner you start the better it is. It is also one of the best tools for retirement as well as tax planning.

Clear off dues

The golden rule of financial planning says that clear off your debt first. So, before embarking on the saving journey, first pay off your education or personal loan, if any.

Buy Insurance

Last but not the least buy Health and Term insurance. Health Insurance not only helps to tide over medical expenses but will also keep your savings intact. In addition, consider buying term insurance if you have dependents.

Take the baby steps early and see how your savings and investments work for you.