I am a 25-year-old who is about to embark on my first job, and I am seeking advice from individuals with experience in this stage of life.
My fixed annual salary is Rs 12.5 LPA with a 10% variable component, and I have a monthly education loan EMI of Rs 38k. Given that I will be living in Mumbai, I understand that expenses can escalate rapidly.
This marks my initial venture into managing all aspects of my life independently, including rent, food, savings, and investments. My goal is to begin with modest and intelligent approaches, with the aspiration to transition out of survival mode as swiftly as possible.
I would greatly appreciate any guidance on:
· Budgeting recommendations tailored to Mumbai
· Ideal monthly savings/investment targets
· Strategies for managing loan repayment without becoming overwhelmed
· Advice on maintaining a healthy lifestyle and mental well-being at the commencement of one’s career
Additionally, I am interested in learning about any insights or tips you wish you had known when you started your first job. Your assistance would be immensely valuable to me.
Advice by Rajani Tandale, Senior Vice President, Mutual Fund at 1 Finance
Starting your first job and managing your finances independently can be an exciting yet overwhelming experience. At 25, with a Rs 12.5 LPA fixed annual salary, the financial journey you’re about to undertake in Mumbai comes with its own set of challenges, particularly in managing expenses and building a solid foundation for the future. Here’s a detailed guide to help you start on the right note:
1. Budgeting Recommendations for Mumbai
Living in Mumbai can be expensive, and understanding your cash flow will be key to managing your finances effectively. Here’s a basic budgeting framework:
> Fixed Expenses:
o Education Loan EMI: Rs 38,000 per month, which totals to Rs 4.56 LPA. Given that it is a fixed expense, it should be prioritized in your budget.
o Rent: Rent in Mumbai can vary greatly depending on the location. A reasonable estimate for a 1 BHK could range from Rs 25,000 to Rs 50,000 per month, depending on whether you opt for a shared apartment or a solo unit. Opting for shared accommodation will drastically reduce this cost.
> Variable Expenses:
o Food & Groceries: Rs 10,000 – Rs 15,000 per month for a basic but balanced diet.
o Transportation: Depending on your mode of travel, this could range from Rs 2,000 to Rs 8,000 per month. Mumbai’s local train network and public transportation offer economical choices; however, utilising ride-sharing services could lead to higher expenses.
> Savings & Investments:
o Aim to save at least 20-30% of your monthly salary, which is approximately Rs 25,000 to Rs 30,000 per month. As you start, try to make savings a habit before spending.
2. Ideal Monthly Savings/Investment Targets
Any solid financial plan should begin with emergency planning, which includes:
· Health Insurance: It’s important to have a personal health insurance plan in addition to any corporate coverage. Ideally, aim for a cover of Rs 5-10 lakh, as this will provide a safety net for unexpected health-related expenses.
· Term Insurance: If you have individuals who rely on your financial support or if you are obligated to repay a loan, it is advisable to think about purchasing term insurance. While the details of your current loan are unclear, it’s advisable to have a term plan with coverage of at least Rs 1-2 crore in the future.
· Emergency Funds: Ideally, 6 months to 1 year of your expenses should be parked in a safe asset like a Fixed Deposit (FD) or liquid funds. If you don’t have this yet, start creating it by setting up an SIP specifically for your emergency fund, so that it accumulates over time.
3. Strategies for Managing Loan Repayment
With a monthly education loan EMI of Rs 38,000, managing the repayment along with daily expenses can be challenging. Here are a few strategies:
· As your education loan is 30% of your salary, it’s crucial to prioritize clearing it, especially if it carries a high interest rate and doesn’t provide tax benefits (assuming you’re in the New Tax Regime).
o Prioritize Loan Payments: Since it’s a fixed expense, ensure that your loan repayment is always a top priority. One way to manage this is by automating your EMI payments, ensuring it doesn’t interfere with your cash flow.
o Loan Prepayment: Once you have an emergency fund and start saving consistently, consider making occasional prepayments toward your education loan to reduce the overall interest burden.
o Explore Loan Restructuring: If your loan rate is particularly high, inquire with your bank about refinancing or restructuring the loan for more manageable payments.
4. Maintaining a Healthy Lifestyle and Mental Well-Being
If your financials are sorted, your productivity increases, and you can focus more on your career and personal growth. This consequently enhances your overall mental health.
5. Investment Strategies: Start Simple and Smart
Once you’ve tackled your essential expenses and established an emergency fund, it’s time to begin investing:
· Mutual Funds: Start with Nifty 50 index funds or a flexicap fund if you have a surplus every month. You can allocate a small portion to Gold ETFs for diversification. It’s important not to complicate your portfolio by adding small-cap, mid-cap, or sectoral funds.
· Retirement Planning: As you start, consider contributing to the corporate National Pension Scheme (NPS) for long-term retirement planning.
6. Insights or Tips I Wish I Had Known When Starting My First Job
Here are a few additional tips that I wish I had known when starting my career:
· Networking: Invest time in building a network of colleagues and mentors who can offer guidance on both professional and personal growth.
· Tax Planning: Understand tax-saving opportunities early, like 80C deductions (PPF, ELSS, NPS) and HRA exemptions to reduce your tax liability.
· Career Development: Don’t focus solely on the salary; look for growth opportunities in the company. Skills development and career progression are just as important.
· Be Financially Mindful: Avoid unnecessary spending on lifestyle upgrades (like expensive gadgets) until your financial foundation is secure.
By following these strategies, you can not only manage your finances but also set the stage for a financially secure and fulfilling career. It is important to note that initiating your planning process sooner will lead to a more seamless financial journey. Best of luck with your career and connect if you need a more accurate financial plan.