The first job's special. The feeling of independence is unparalleled. So, how about trying to make that feeling last forever?

On a cold and chilly afternoon at NCR, Partha Iyengar, founder of Accretus Solutions, a wealth management and financial planning firm, was busy making a series of presentations to a group of 80 youngsters in the age group of 21-30 years.

Mind you, the presentation was not about work or enhancing their IT skills but on financial wellness. Also, it is not about what to invest and when to invest, or tax planning - the most asked questions in any such session. Partha's and the company's objective (which engaged him) is to educate and empower the group of its employees on the basics of money management and personal finance. He wants these youngsters to apply some basic tools and resources in finance in their daily lives to attain financial freedom over a period of time. So, why is planning and personal finance so important for these youngsters, who have just begun their working life?

Starting Off:

Most people take up their first job between 21 and 27 years. Since the job will earn you a salary, you need to plan what to do with that money. "Whilst there will be expenses that you have to take care of, in the initial or formative years, chances are high that you will save money," says Iyengar. There are several things that may vie for your attention - should you start planning for your wedding which is about five years down the line, or buy a house or a car, or go for that overseas trip and so on. Should you simply jump into it or build a corpus first and then plan it out. "The important thing is to plan to reach these milestones and one must have realistic expectations," says Anup Bhaiya, MD and CEO, Money Honey Financial Services.

Lower Your Expectations:

Very often youngsters have vague ideas about investing. For example, when Iyengar was counselling a young investor (who had just taken up his first job) who was keen on buying a house. His goal was ambitious as he wanted to buy a house for . 1.5 crore [in today's value] in five years. After collecting data on his current income, cash flows and future income potential, Iyengar found out that it would not be possible for him to reach the goal. His rationale and recommendation to the young investor was: "Based on your earnings expectation of a salary of . 1 lakh per month after five years, our back-of-the-envelope calculations [without even factoring in inflation and possibly higher interest rates] says, to buy a . 1.5 crore house, you would need your own contribution of . 30 lakh and a loan component of . 1.2 crore. Now, a . 1.2-crore loan would entail a monthly EMI of around . 1 lakh approximately. Of course, we are assuming that you have saved as and your family would also contribute the margin money of . 30 lakh in five years. Even if your entire salary [again assuming taxes would be paid by you somehow] goes towards meeting the EMI commitment, you still would need to cover for your monthly and personal expenses. Therefore, Iyengar suggested that he scale his budget down to . 50 lakh. This can be done."

The young investor grasped the idea and accepted the idea of buying a house for . 50 lakh after five years. So, the lesson here is to have realistic expectations. Most people, when they start off, do not know what they exactly own or what their parents have bought for them. "It would be nice if parents involve their kids who start working on the financial planning process," says Sumeet Vaid, founder and CEO, Ffreedom Financial Planners. While addressing the same group, Iyengar asked a very simple question. How many of you have insurance and what is the product. Surprisingly, though a lot of people knew their parents had bought a policy, no one knew the policy's name or the features and benefits of the policy.

Vaid does, what he calls, a financial X-ray of every person who is starting his journey in financial planning. In a KPO (knowledge process outsourcing) for which he is an advisor of a group of 50 young people, about 36 were not even aware of the amount of money they would need to maintain their desired lifestyle after retirement. Hence, awareness is critical and a must. Then, there are others who do not understand financial products. So here is some advice by financial planners for those starting off their financial journey.

Understand Products:

"If you have not got a credit card in college, it's the first thing youngsters want to possess when they start working," says Vaid. However, there are things to remember that one should always pay your credit card dues in time. "I did not realise that banks were charging me as much as 24% interest on my credit card, while money was lying idle in my savings bank account earning 3%," says a Delhibased software engineer, who paid off all his credit card and started investing his money. So, if you have any outstanding dues, preferably clear them off even if it may mean using funds from your savings account.

Invest Regularly:

Equities over a longer period of time are the best bet against inflation. "If you are young and have time on your side go for SIPs, which could be done in diversified equity funds or tax-saving funds," adds Bhaiya. So when 24-year-old Ashish Samdani asked him for advice on where he could save on a monthly basis, equity SIPs were recommended to him by Anup. Today, Ashish makes an investment of . 5,000 per month in SIPs. Assuming a 15% return per annum over 10 years, this investment could grow to as much as . 13.93 lakh, something that could come handy in making an upfront payment for buying a house, adds Bhaiya.

"Over a longer period of time, equity is one of the best performing asset class, and with SIPs volatility evens out," says Anil Chopra, Group CEO, Bajaj Capital. This will also help you build a bigger corpus which will come handy for your future goals - be it marriage, buying a house or supporting your children's education. Invest regularly and do not keep waiting for a lump sum to begin your investments.

Build An Emergency Fund:

Many of us remember the recessionary days of 2008, when there were salary cuts and job losses on account of the global turmoil. There may also be times when you may have to take care of your parents. "Hence, it makes sense to build a fund equivalent to about 4-6 months of your current salary as an emergency fund," adds Vaid. This could come handy in times of recession and in case of job cuts, the kitty will ensure that you stay financially independent whilst you look for another job. Besides this, there may be medical emergencies in the family, for which you need cash and where this fund could come in handy.

So set the ball rolling and wish you happy financial planning !

GET MONEYWISE

BE METHODICAL

Don't just say you want to buy a house in 2016. Make a plan for it, ensure it is feasible and work towards it

SPEND BUT SAVE TOO

It is essential to save in the first five years, as savings during this period can give you a great lead in your financial journey

YOUR TIME STARTS NOW

Don't think it is too early to start thinking about retirement planning. The sooner you start the better it is

BUY RIGHT

Buy the right investment products. If you have time by your side, you will be better off having a higher equity to exposure

KNOW YOUR LEGACY

Know what products your parents have bought for you. Take that into consideration while making a holistic plan for yourself

Source: http://epaper.timesofindia.com/