When you first got your salary, the feeling you get when your salary is credited is happiness. You feel proud of yourself, pat yourself on your back, you are really very happy. The question on your mind is what to do with the money now. Everyone got plans on how to spend their first salary, you can buy gifts for your loved ones, spend on yourself, pay the bills, maybe donate to a charity.

There are many things that you can spend on. Your parents will advise you not to be a spendthrift and be sensible with your money. Someone will tell you to invest the money in safe assets, buy insurance, buy gold and many salesman will come knocking on your door cold calling you to pitch their investment products. But the thing is not everyone is expert in investing, and taking on the advise of the people is the worst thing possible for to you do.

The truth is, financial literacy is not a topic that is taught in schools and colleges, you have to learn it through experience. It is a trial and error kind of situation where you don’t really know what the outcome will be. In this post I will try to shed some light on basic of Savings, investing and managing your money.

The word Savings is a very familiar one but not everyone understands the true meaning of it. It is what remains after expenses from your Salary. To write it as an equation,

Savings= Salary-Expenses.

Expenses are what you have to spend to sustain your life. It includes bills, foods and entertainment. You have to manage your expenses in such a way that there is some scope for savings. After a few months you will notice that your savings is slowly getting bigger if you are managing your expenses in a right way. But the problem is, the money in the savings account is staying idle, it is not earning any significant return on it. You see that the rate of interest you get if you let your savings stay in your bank account is on the lower side. Your aim should be to protect your capital and at the same time get a decent return. There are other instruments where you get higher returns such as equity market and bond market. We will talk about both of them later.

Savings is inversely proportional to your expenses. The more you spend the lower will be your savings. Our aim should be to minimise our expenses to increase our savings. Higher amount of your savings will let you create a diversified portfolio of assets. You see different types of jar in your kitchen each having different items in it. In the same way you can keep your money parked in different assets depending on your risk appetite and your future goals.

If you want high returns and wiling to take high risks you can park your savings in Equity market, not in individual stocks but in broad based index fund or ETF. This will give you market returns which is historically about 9% to 10% per annum. Bond market is less riskier and less volatile than equity market and it will give you lower returns relative to equity returns. You can invest some amount in government bonds. In Insurance there are two types which are important, health plan and term life. Insurance is not an investment for good times , it is an investment for the protection of you and your family in bad times.

You should have an investment plan to invest in the above 3 types in your desired amount of allocation. For example, you can invest 40% in Equity, 50% in bonds and 10% in insurance. The asset allocation plan can be devised from a registered financial advisor. Two of the most important things that you should start doing when you start earning is to create a corpus of emergency funds which can cover at least 6 months of your living expenses. Second is not to take loans early on as it will highly hamper your savings rate. Incase you do have to take one, make sure the EMI do not exceed 30% of your monthly salary.

Finally savings is very important now because of the pandemic as many people have lost their jobs and struggling. If you are looking to grow your income passively check here. Having a health insurance has proven to reduce the monetary burden on the bread earner of the family. Investment is important because it is for your safe and secure future after your retirement, it will be your investment that will help you in retirement life without depending on anyone. So don’t waste your time, start savings and investment now. This is not an investment advice, please consult with your financial advisor.