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Since you already have thought to invest money with your first income, you have landed in the right place. Well, not everyone still thinks of investment as their first option once they start earning. However, the sooner we realize the better it works out for everyone.
I too have been in the same spot for years after I started earning. It was all about buying things that I wanted the most and rather not invest or save the money for the good. Considering the fact that even if you save around 20% of the money you earn every month will benefit you for everything that you may require in the future.
So, taking all the mistakes I had made during my time and also speaking to multiple other people who are doing better, I have mentioned all the ways in which you can start investing your money after you earn your first income and continue to do so.
Let us get started.
Why the need for Investment?
There are a plethora of reasons why you need to invest money with your first income like this very second. A lot of people might only talk about how it is good once you retire and the money will come in handy.
However, I have a different approach to it altogether. You are investing money not only for your future but also to increase your wealth in a more secure manner and grow your money. Many of you might confuse it with saving money but it is just a part of the entire process.
For example, you can choose to open a Fixed Deposit Account in your Bank and earn a small percentage of money till maturity. If you choose to put up around 25% of your salary each month in Fixed deposit or even recurring deposit you can easily earn 4% to 7.25% on the total amount.
It will be beneficial not only in the next 5 years but also you can use it whenever the need comes such as a medical emergency, loans, etc.
Furthermore, you will be in control of your money whether it be in regards to the student loan you need to pay or simply any small amount you wish to spend. Here are some points that may help you better understand why we need to invest more rather than simply saving money.
1. Higher Investment Returns
The first aspect that many people look for either be it on a large scale or simply someone like you looking to invest from their first salary.
Your ultimate goal is to get better returns. You can choose to invest in stocks, bonds, real estate, etc., as an asset or else simply on other risk-free options such as Fixed or Recurring deposits. It all comes down to getting high returns in whichever option you choose to invest in.
2. Attain your Financial Goals
It is not a complete necessity in my eyes that you need to have a long-term goal for your life ahead. Considering the fact that you have just started earning money and since this is your first income, you may want to start with something safer. But having a financial goal might help you out in a better way for the future.
For example, if you wish to buy a car in the coming 3 years. You cannot simply choose to achieve that by earning an income and keeping aside a small portion of it. Rather you can choose to start some deposits, put your money into stocks, shares, and other options that will only grow your wealth.
3. Tax Benefit
Since you are new to all of this, it will keep things a little less complicated and make things more clear with fewer words. Another brilliant advantage of investing your money includes tax reductions as well. No matter which country you belong to, the government has brought up certain tax benefits on schemes that you can apply to and invest your money into.
For example, if you are investing your money in certain stocks that bring in tax benefits, during the filing your taxes you can claim the benefits from your total income and provide you a lot more benefits for the long term.
4. Retirement Plans
Let’s be honest here. We all somehow think about retirement at least once in our life when we finally become financially independent. But it does not simply mean that you can “save” money from what you earn every month and move towards retirement.
As Warren Buffet rightly said, “Investing is laying out money now, to get more money back in the future”. It entirely depends on how much are you looking to invest or what percentage of money can you invest for a better future.
3 Places to Invest Money with your First Income
When we say the first salary, it can be any number of amounts. I often follow the rule of saving my money before I can start spending it on any number of options I have in front of me. Well, once you get started with it, you may only need to do the real brainstorming the first time. After that, as soon as you gain the knowledge you can try out other options too.
It is important to understand that before you can even think of putting your money into anything, make sure you are aware of the risks involved in it. Even with mutual funds you never know how the market will react the very next day or in the coming years and it tends to fluctuate. However, I have made sure to list out the best options you can get started with.
1. Emergency Fund
The name itself speaks the meaning behind the reason we are going for creating an emergency fund. As an adult, or I can speak for myself, you need to create an emergency fund either on a separate bank account in the form of savings, or you can choose to create a Liquid Fund.
To keep it simple, Liquid funds are basically a type of Mutual Funds for the short term that are less risky and are there for great benefits.
Emergency funds are generally created as a first-hand investment such that you can use it in times of crisis such as a pandemic, health emergency, or anything that may require you to arrange a certain sum of money that all the other investments may not be able to give you back this instant.
Also, another important aspect about emergency funds that I have learned over the years is the fact that you need to decide firsthand how big it should be. It depends on how much you are earning.
Let’s say your salary is around 50,000 INR, you can at least use 20% of it as an emergency fund or even more just to get started with it and increase it so that it might be a substantial amount in the future.
2. ELSS Mutual Funds
ELSS or better say Equity-Linked Savings Scheme are equity-based mutual funds. Well, we are here speaking directly about a tax-saving scheme that will not only provide you adequate interest but also save taxes from your income. As per the Government of India under the Income Tax Act of section 80C, you can avail substantial tax benefits.
There are multiple funds that you can look into and learn more about them under this particular scheme. In fact, you can save around 1.5 lacs every year if you choose to invest your money into this.
Also, you may wish to know that these are open-ended types of mutual funds that have a lock-in period of three years. It is applicable for both SIP as well as lumpsum investment.
For this, you may have to create a Demat Account directly with your bank or to make things much easier and convenient, you can download the Groww app.
But it is not a necessity for anyone to open a Demat Account to invest in Mutual Funds, rather you simply need to complete all your KYC verification. I have been using the app personally for years now and there is no better way to learn as well as manage all my investments.
3. Public Provident Fund (PPF)
Well, if you are looking for something that might work as a long-term investment for you, there is nothing better to go with than a Public Provident Fund (PPF) investment. We recommend PPF as one of the most promising options here to get started with for anyone who hasn’t invested money here, a very important reason behind this being the fact that the returns and the interest earned here are not taxable under the Income Tax.
When I first started up, I had no idea about any of such schemes that will help me grow my wealth for the future, let alone save taxes. But here you are with all the information you can grab before spending all the money you have earned.
Anyone can choose to open a PPF account either directly in the Post Office, Bank, or other sources that are much easier to get started with.
Some major facts associated with opening a PPF account and starting your investments are listed below. Make sure you go through them all and learn more.
- The current rate of Interest is 7.1% per annum.
- Minimum tenure of 15 years
- Minimum Investment amount- 500INR
- Maximum Investment Amount- 1.5 Lacs (Each Financial Year)
- Minimum Opening Balance for an account- 100 INR
- PPF holders can have a nominee
- One person can only have one single PPF Account
- Withdrawal after Maturity Only
Here are some of the most basic details you need to know before simply opening an account and going for it. I would recommend learning more about such schemes and then put your money into it. I am here only to share my experience and would never speak of options that might be risky or not worth it.
2 Best Options for a Sound Financial Plan with your first Salary
I have added this very important section based solely on my personal experience and what I should have opted for in my early days.
Apart from simply choosing the best investment options, you might want to look at these two very important options that anyone must have under their financial plan. Whether you are just starting up or simply have come a long way. You need to do this.
1. Health Insurance
It might sound a little too out there especially since you have just started earning money, but believe me, this is even more important than simply growing your wealth. No matter how much money you are earning each year, having health insurance should be your foremost priority. In India, such decisions are mostly taken by the parents for themselves and their children.
But if you are the sole earner of the family, you might need to take a look at multiple plans for you as well as for the well-being of your family in terms of crisis.
These insurance plans act as a major benefit factor especially if you are suffering from a life-threatening disease and the hospital bills are beyond anything. Your insurance can help you claim all the money and also be useful in paying all of it with ease.
Such insurances have a lot to offer and you must go through all the benefits that it is providing before selecting the plan. There are direct offers that might only cover basic ideas while excluding certain clauses. Hence it is important to be well informed before signing off any papers or starting any such insurance policies.
2. Term Insurance
I am sure you may not have heard of or have deep knowledge about term insurance. Well, I did not have it as well. But over the years of learning and exploring, I can surely say this is something that many of us tend to opt out of our financial planning.
This is generally for those who have a family to look after or even is the sole earner of the family. But you can do this as well as being an individual and have a definite nominee for it.
Term Insurance is a sort of life insurance policy that provides financial security to the family or the nominee during the specified time period or term. The basic benefit here is known to be the death benefit. If the insurance holder dies due to unforeseen circumstances or even disease while the policy is still active, the nominee will receive a death benefit.
You can calculate the premium amount that you need to pay based on your current age and life expectancy that can be determined by certain medical examinations. However, not every premium plan has such obligations and it entirely depends on the plan you choose. You are required to pay a small premium amount each month to avail the benefits of the policy.
Moving on, if any policyholder dies after the expiration of the policy, there will be no payout or coverage. But you can always choose to renew your policy to keep it going for your benefit. It may seem a little complicated to understand this at first, hence make sure you gain proper knowledge about all these factors and then put your money into it.
Bonus Investment Options- What more can you Explore?
The reason I am counting these options here under something you can explore means that these can be a little risky and should only be done once you have gained enough knowledge about them. It took me a considerable amount of time myself to be able to get my hands on these and only then did I get started.
1. Direct Equity Investment
I will not be taking these sections into way too deep since there is a lot to learn about them before I can recommend them here. Hence these options are directly under the “To Explore” category.
By Direct Equity Investment we meant getting into the stock market. For this, you need to have a thorough knowledge of the market and how things work out when the market opens and closes. Even if you have a basic knowledge might not be enough, rather brainstorming into reading the charts might be something you need to look forward to. Also, to start investing here, you need to open a Demat Account which is mandatory for everyone.
Here you can directly buy shares of companies that are listed on the NSE and the BSE. These come under risky factors because you never know how the market is going to react and there are no fixed returns. It entirely depends on the everyday market rise and fall.
2. Cryptocurrency
You might have also heard the hype and buzz about Cryptocurrency around you. When we talk about the risky investment that also could give you high returns in a short span of time, we mean investing your money in Crypto. But I would never recommend anyone to go with this particular option especially when you have no idea how it works even the slightest.
It requires substantial knowledge of the market. In the most basic terms, a Cryptocurrency is a form of digital currency that is decentralized. No part of it is operated by the Central Government in any part of the world which is why some have even banned the trading of crypto in their countries. But there is a lot to learn and explore about the various coins in the market and how everything works.
Final Verdict
Here we are with everything we could know on ways to invest money after your first salary or income. When it comes to investing money, there are tons of things you can learn while you take part in it. All the information I have mentioned does not even constitute 1% of what you should know about achieving your financial goals.
If you haven’t set up a goal yet for the years to come, you can still do it now while you follow the different prospects and options we have mentioned here. Make sure you understand the benefits but also the risks of putting your money into everything.
