Landing your first job can be very exciting. Becoming a part of the workforce and beginning to earn your own money will make you feel more self-assured. While celebrations will necessarily follow, it is also extremely important that you start thinking about a few financial lessons to plan for your long term. Making good financial decisions must become a priority when you start receiving a regular paycheck. So, to get you started, here are a few financial lessons to keep in mind when you start your first job:

• Clear any education loan you might have taken soon:

Be it a course in India or abroad, several people take an education loan to help them complete their studies. Since these loans usually come with a high interest, it should be a priority to clear them as fast as possible. The longer you take to clear your loans, the more your debt will accumulate, thereby causing your credit score to drop. This can be close to impossible to reinstate and will affect other things like the rate at which a home loan is given to you. Moreover, tax deductions you can claim on these loans are valid for a period of 8 years only.

• Make a well defined budget based on your take home salary:

The salary quoted on your offer letter will not be the exact amount that reaches you. There are several deductions, including income tax, provident fund, etc. that will be taken out of your salary before you receive it. Once you know exactly how much money is coming into your account every month, try to get an understanding of your cash flow. List your expenses and start eliminating the ones that are not essential. Budgeting your finances is one of the best ways to stay clear of debt. However, these days swiping a credit card has become easier to buy any product. So an even more fundamental lesson to learn is to mitigate borrowing of any kind; which includes using a credit card. It is always better to restrict yourself to the money you already have, through a debit card. 

• Get sufficient insurance coverage:

While many employers subscribe to a group plan for the employees of their company, this might not necessarily be sufficient. So, in the case that your employer provided insurance is inadequate, you might need to think about purchasing more. Buying an independent health and life insurance plan, from a different insurer than your employer provided coverage, is a good way to mitigate risk. Another thing to remember is that buying a life insurance plan only makes sense if there are people who depend on your income for survival – like an unemployed spouse, children or elderly parents without their own savings. 

• Start investing in a retirement plan:

While it may seem like a long way off, the earlier you start planning for your retirement the better. You should think about opening a Public Provident Fund (PPF) account, apart from the provident fund contribution your employer handles. Investing in annuities is also a good way to secure your finances until the time of your retirement.  It would be best to consult a financial planner while investing in such products. 

• Set up long term goals and start saving as early as possible:

At the beginning of their career, many people forget to set up long term goals. You don’t need to know the exact way in which they will play out but setting up broad goals is important, especially to find a direction to take your career and life forward. To achieve these goals, you should make up a rigorous savings plan that includes investing in equities, bonds, etc. in addition to more traditional methods like opening a savings account and starting a fixed or recurring deposit. As a rule of thumb, it is good to try to save at least 10% of your income every month. 

• Set up an emergency fund:

Accidents and emergencies are unpredictable. They can happen at any time and usually require immediate action. So whether it is a medical emergency, or a last minute payment, having an emergency fund will ensure that your cash flow is not deterred. In this sense, your emergency fund is primarily a safety net in the case of contingencies. While there is no fixed amount to maintain as an emergency fund, a good measure is around 3-6 times your household expenses.

• Work with a professional:

An extremely common mistake that many individuals make is trying to manage their finances by themselves. Financial planning is a complex activity, especially if it involves working towards long term goals. In this sense, it is imperative that you work with a professional. Hiring an experienced and certified financial planner of wealth management firm, can help you reduce your burden, while making sure that your finances are organised efficiently. An additional point to keep in mind while working with a professional is to engage them in conversations about tax saving options, so you may find ways to maximise your income.

You should start thinking about how to organise your money even before the first paycheck reaches you. With these few points in mind and a sound financial plan, you will be able to make the most out of your first job and set up a strong foundation to build your career.