FINANCIAL PLANNING TIPS FOR NEW TAXPAYERS: THE GEN Z

Now that you have entered the corporate world and started earning, you must be hearing a lot of financial jargon – budgeting, income tax, mutual fund investments, asset allocation, and more. The first thing to do is learn the basics of financial planning and then everything else will start falling into place. So, here are some financial planning tips for you:

  1. Earn-save-spend

When you start earning for the first time, it’s natural to want to spend and indulge in your wants. But the order you should follow is earn-save-spend instead of earn-spend-save. The issue with the latter is that most people arrive at the save stage too late.

  1. Make budgeting simple

Budgeting allows you to have a clear picture of your income sources and expense items for a month. But you will only be able to create and maintain a budget if you keep the process simple. Use a spreadsheet or a simple journal – whatever is convenient to you and make sure to review your budget every two weeks or so and revise it when needed.

  1. Have money saved for emergencies

It’s crucial to have excess money stashed away where it is easily accessible for when you need it, such as your bank savings account or a fixed deposit. Emergencies such as loss of income or your car breaking down could require money that your monthly budget doesn’t have space for. Hence, you should have an emergency fund saved up that is enough to cover at least six months of your living expenses.

  1. Don’t delay investing

While investing can seem intimidating and jargon-heavy, the earlier you begin, the better it is. You can consider mutual fund investments because it’s a safer and more convenient way for beginners to start investing. There are various types of mutual funds such as equity funds, debt funds, and balanced funds and you can invest in mutual funds online in a quick and seamless manner.

  1. Understand the basics of taxes

Income tax is charged on every type of income you earn. This includes your salary income, income from investments, income from freelance projects, etc. The percentage of income tax depends on how much your total annual income from all sources is. You can reduce your income tax liability by making certain investments that offer tax deductions and exemptions. For this, you should have a conversation with your accountant or financial advisor.

  1. Focus on diversification

Diversify your skills so that your career opportunities are not limited, diversify your sources of income so that you are not at the mercy of one source, and diversify your investments so that investment risks are hedged. No matter what aspect of your financial health, remember, diversification is the key.

If you have your budget and emergency fund in place and want to start investing, look at the Systematic Investment Plan (SIP) mode of investing in mutual funds. It will help you save and invest your money regularly in a disciplined manner and you can begin from an amount as low as Rs. 500.

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