Mo-Money, Mo-Problems

“You will either learn to manage money, or the lack of it will manage you. “
- Dave
ramsey

Introduction:
Joining the workforce is a milestone in every individual’s life. As money starts coming in, it’s
easy to overlook the importance of managing it and to forget what might happen if this flow
stops.

This guide tries to provide practical tips and real-life examples to help you navigate budgeting,
saving, investing, and managing debt, ensuring a stable and prosperous financial future.

Tracking your Expenses & Income:

As life moves quickly, we often fail to realize how small and often meaning less expenses pile
and eat away our money. It can be as small as buying a new pair of shoes every month or
getting the latest iPhone.

It is very important to understand how and more importantly, where you are spending your
money.

To manage your expenses, you need to do two things,

1. Tracking your spends: Simply divide all your expenses into categories and see
which category or expenses are essential ( fixed ) and which expenses are non - essential
( variable ).

In this era of fintech you can get a lot of apps online which can help you categorize your
expenses and help you analyse trends and patterns too.

Few examples include - Axio, Paytm and often your very own banking app or you can even
use a simple excel sheet and update it on a weekly or bi-weekly basis.

2. Budgeting: There are a lot of budgeting “ratios” which tell you how much you should
save, spend and invest and here we’ll go with the most common.
 In the initial years of your life, it's expected that you spend a major portion of your income.
As you move up the ladder you start to save more and more as your expenses usually don't
grow as quickly as your income.

A generally accepted rule of thumb in budgeting is the 50:30:20 rule.

It says that one should allocate 50% of your income to needs, 30% to wants, and 20%
to savings and debt repayment. It is also advised to automate your savings so they deduct
from your account as soon as your monthly income hits your account.

You can tweak this number as per your need, but it is generally advised that the savings
should be at least 20% of your total income.

Now that you have started saving money, the next step is to invest it.

Investing:
Your investment strategy should depend on what your goals are. As a young individual with
limited liabilities and greater risk-taking capacity, your goals might differ from someone who
has an education loan to pay off for the next 10 years.

It is a good idea to have a mix of different investment instruments with you. The major heads
can look like

1. Emergency funds: This is the amount which you can encash quickly in case of an
emergency. These funds should essentially be 3-6 months’ worth your currently salary
or 10% of your investment portfolio, whichever is lower. They should be in a highly
liquid asset class like in a high interest saving account so that you can have quick
access to these funds.

2. Fixed Deposits and Bonds: To safeguard your money from market fluctuations and
volatility you should have around 20-25% of your portfolio in form of FDs and Bonds.

3. Mutual Funds and Stocks: These are your long-term investments which will make
you money if done right. Compounding is often said to be “The eighth wonder of the
world. He who understands it earns it, he who doesn't, pays it.” To emphasize why
investing in this class is extremely crucial, have a look at this illustration. One can also
 invest in a basket of stocks pertaining to specifc industries by using applications like
Smallcase. Complete or part ownership of foreign stocks is also possible with the help
of applications like INDMoney which also allow you to track your networth.

Fig 1. Stocks vs FD

It's evident that in case of longer time periods, stocks and mutual funds clearly provide
better returns when compared to an FD. Hence around 40% of your portfolio should
consist of such instruments.

4. Retirement Account: To ensure a comfortable retirement without the worry,

contribute to accounts like the Employees' Provident Fund (EPF), Public Provident
Fund (PPF), or National Pension System (NPS) which ensure you get a lump sum or
monthly income even after your retirement.

5. Other Investments - To diversify your portfolio one can always choose to invest in
more real assets like gold and real estate however they are often considered highly
illiquid and should be avoided at an early stage. They are however extremely lucrative
and help create long term wealth. A good alternative to these can be gold ETFs and
REITs. One also has the option to invest in crypto currency which is a very liquid asset
yet quick unstable.

Other things to consider are your debt liabilities and taxes. Your investment decisions as well
as income can depend on the state tax rules and exceptions. To maximize your income in
hand one should always consult with a professional who can guide you navigating the tax
structure and use it to your advantage.

Managing money is essential to ensure your future and live you present to the fullest. With the
help of this guide, we tried to provide an introduction to financial management and how you
can lead a financially secure life with whatever amount of money you make!