Before we will discuss about what to do with your First Salary lets take a live case of Rahul
About his First Salary to Last Salary
Rahul (23) who is from Bhopal complete his Mechanical Engineering from Indore and just got a Campus placement and started working as a junior engineer in one engineering company in Pune, his net monthly salary is Rs. 30,000. What net monthly income means is that he gets Rs. 30,000 in his bank account credited after all deductions like Provident Fund, taxes, etc. He is single and has found that his monthly personal expenses are Rs. 8,000 including conveyance and daily expenses.
This is where he has to take decisions about timing and use of money. What this means is that he needs to take a call – whether I will spend all the money now or save for later, whether I will spend all the money on shopping, eating, parting or invest to create some useful asset.
Now just to understand the power of investing early and regularly we take the case if he start invest Rs.5000 p.m. till the age of his retirement i.e. for 35 years till he received his last salary.
So:
| Value of Investment done for 35 years | ||||
| Amount | Total Investment (5000*12*35) | If Grows @ | ||
| 10% | 12% | 15% | ||
| 5000 | 2100000 | 17129467 | 27554156 | 57074220 |
All returns are CAGR
From the above we have found that if Rs.5000 p.m. invested in the instrument which gives
A return of 10% it will make around 1.7 Crore in 35 years
A return of 12% it will make around 2.7 Crore in 35 years
A return of 15% it will make around 5.7 Crore in 35 years
Point that needs to be understood is that saving is one part and putting it in useful financial instruments is another. Buying all equities could be very risky and putting all money in FDs can be a waste for the young investor like Rahul.
Better idea is to match your investing with your time horizon. If you have lot of time, invest more in equities, else have a balanced portfolio. What exact portfolio should be is very relative to each person but having more exposure to direct equity and/or equity mutual funds is what is suggested to young people as they have long investing time and need an overall greater return.
Managing money is something that most Indian parents are not very comfortable teaching. Usually one hears, be satisfied with what you get. This is true but important is to make arrangements for money with money.
You probably have heard saying people around you that “I bought my girlfriend a watch, got myself some cool sneakers and the rest disappeared in discs and drinks.”
Getting a job and earning “my own money” seems to be the only goal in life. There is a long list of things to be done and bought with the first salary.
