One of the most prominent landmarks in any individual’s life is receiving their very first paycheck. That adrenaline rush, that excitement to be financially independent is indescribable. Often, we end up spending that income on buying gifts for our near and dear ones and treating and spoiling ourselves with expensive gadgets or phones or any other commodity. Though it is completely fine to go all in with your expenses with your first salary, should you be doing the same with the consecutive pay cheques? The answer is NO. You must invest your money right from your first job.
Millennials often have the habit of living paycheque to paycheque. However, this practice is frowned upon by experts. You must devise your investment strategy right from your first paycheque and begin with your financial planning. Remember, just as the early bird gets the worm, investing early can help you to manage your finances better and lead a comfortable life. Here’s how you can handle your investments after first job.
Basic financial concepts that have a significant impact on your investments:
- Relation between time and compounding
Time and compounding have a direct relation. The longer you stay invested, the higher is the potential for your investments to grow at an exponential rate. Hence, it is always advised to stay invested for a longer duration to allow the power of compounding. Rather than waiting to accumulate a significant amount to invest in mutual funds, it is advised to begin with your investments with whatever amount you have. You can choose to invest in mutual funds via SIP (Systematic Investment Plan) mode of investment.
- Risk profile
Mutual fund investments are subject to market risk. Almost all types of investments are subject to some type of risk. However, note that the higher the risk, the higher is the potential for significant returns. However, one should not go overboard with their risk appetite. This means that if you have sleepless nights at the slightest hint of volatility in the markets, you might consider switching to more conservative investment options. As a thumb rule, you can follow the 100 minus rule. According to this rule, the percentage of allocation towards equity funds must be 100 minus your age.
Inflation refers to the decline in the purchasing power of money. This is due to increase in prices of goods and commodities over time. Inflation is a scary reality and it likely to stay for an eternity. Hence, it is important to factor your investments with the appropriate rate of inflation. Remember, inflation can eat away a significant part of your returns.
If you are new to investment, you might consider investing in mutual funds. Mutual funds offer the professional fund manager to investors who do not have the time and resources to study and analyse the markets. Different types of mutual funds are available to investors to cater to their varying needs. Choose the one that best suits your portfolio. Happy investing!