Managing finances can be a daunting task, especially for salaried employees who rely on a fixed income every month. However, by implementing effective financial planning strategies, salaried employees can maximize their money and secure their financial future.
In this article, we will discuss seven essential financial planning tips that can help salaried employees make the most of their income. From budgeting to investing, these strategies can help individuals make informed financial decisions and achieve their long-term financial goals. By adopting these tips, salaried employees can build a solid financial foundation and enjoy greater financial security and stability.
Money Management Tips
- Have a Monthly Budget
Creating a budget is an essential piece of financial advice, particularly for those who are just starting their careers. Despite its commonality, the importance of this basic practice cannot be overstated. There are several budgeting techniques available to determine monthly expenses and savings.
A budget is essentially a critical financial statement that predicts receipts and expenses for a specific period, typically created monthly to estimate household maintenance costs. Although it may seem basic, our mothers can demonstrate how to create an effective budget accurately and efficiently. Moreover, budgeting is a practice that can benefit individuals throughout their lives, not just at the beginning of their careers.
- Insure your Family
Insurance is a critical component of financial planning, and it is essential to consider purchasing insurance policies to protect your family’s financial well-being. Life insurance, health insurance, and disability insurance are some of the most crucial insurance policies that salaried employees should consider.
Life insurance provides a safety net for your family’s financial future in the event of your untimely death. Health insurance can help cover expensive medical bills, and disability insurance can provide a source of income if you are unable to work due to an injury or illness. By investing in insurance policies, you can mitigate the financial risks and protect your family’s financial stability. However, it is essential to carefully research insurance providers and policies to ensure that you are getting the best coverage for your needs and budget.
- Manage Debt
Studies indicate that a significant number of millennials, especially those starting their careers, are burdened with long-term debt. This debt is often in the form of home loans, auto loans, personal loans, and student loans. Unfortunately, many of us take on more debt than we can handle due to our desire to maintain a particular lifestyle.
As a result, new employees must exercise caution when making unnecessary or wasteful purchases to avoid falling into further debt. Credit cards are a common culprit for overspending, and new hires must be careful when using them. It is crucial to make purchases that align with one’s cash flow capacity to avoid accumulating more debt.
- Prioritize Savings
Making savings a priority is a crucial aspect of financial planning. The 50/30/20 rule is a general guideline that suggests allocating 50% of your income towards essential expenses, 30% towards non-essential expenses, and 20% towards savings. However, this rule can be adjusted to prioritize savings and achieve financial goals more quickly.
By setting aside money for savings before making any non-essential purchases, individuals can ensure that their financial goals are met. It is also important to consider the best Investment schemes available to maximize savings potential. By prioritizing savings, individuals can build a strong financial foundation and enjoy greater financial stability and security in the long run.
- Invest in EPFs
EPF (Employee Provident Fund) is a retirement benefits scheme that is available to all salaried employees in India. Under this scheme, 12% of the employee’s basic salary and dearness allowance (DA) are deducted by the employer and deposited in the EPF or other recognized provident funds.
To qualify for the EPF scheme, an employee must have a minimum basic salary of Rs. 15,000 per month. The EPF provides a liquidity option that allows individuals to withdraw their PF balance after two months of leaving their job, provided they do not take up employment with a PF-covered employer. The EPF interest rate for the financial year 2020-21 is 8.5%, and both the employer and employee must contribute a minimum of 12% of basic pay plus DA.
The entire PF balance, along with the interest earned, is tax-free if withdrawn after five years of continuous service. However, if the EPF/VPF contribution exceeds Rs. 2.5 lakh in any year, the interest earned on the excess contribution is taxable. The limit is increased to Rs. 5 lakh for government employees who have not contributed to the fund.
Investing in EPF as a salaried employee can be a beneficial retirement planning option for your financial future. Additionally, having a salary account makes investing in EPF convenient.
- Have a Plan for Retirement
The next step in financial planning is crucial for securing your retirement years, although it is often overlooked as people spend half of their lives paying off debts and EMIs. It is important to take steps to secure your financial future in your later years and not rely solely on your children. To do this, there are some essential tips to follow:
- It is recommended to save a minimum of 15-20% of your monthly income as soon as you start earning.
- Investing a certain amount of your savings in an index fund for 20-30 years and adding 10% extra each year can be beneficial. By the time you retire, the total amount you have saved and invested will have grown significantly, providing you with a secure financial cushion for the remainder of your life.
By following these steps, you can ensure that you have enough financial security for your retirement years.
- Have an Emergency Fund
Proper personal financial planning should include setting aside funds to deal with unforeseen emergencies. While it is advisable to have at least 3 months’ worth of expenses saved up, financial experts recommend having enough savings to cover 6 months’ worth of expenses. These savings should be kept in a separate savings account that can be easily accessed in case of any emergencies that require immediate attention.
Final Thoughts
Being mindful of your financial situation is important to ensure your money is working hard for you. By utilizing the seven strategies outlined in this article, salaried employees can begin making a plan for their future and maximize their money. Remember, financial success doesn’t happen overnight and it’s important to be patient and consistent with your goals. There are many resources available to help you with the process, so don’t hesitate to reach out for support if needed.
Author Bio:
Priyanka Rao is a content strategist for Jupiter.Money, and specializes in writing on topics related to finance, banking, budgeting, salary & wages, and other financial matters. She has a passion for creating engaging content that resonates with audiences across various digital platforms. In her free time, Priyanka enjoys travelling and reading, which allows her to gain new perspectives and inspiration for her work. With a keen eye for detail and a creative mindset, Priyanka is committed to creating content that connects well with her readers, enhancing their digital experiences.