How to Invest with your First Salary?

February 09, 2022

How to Invest with your First Salary?

Earning your first salary is one of the best feelings in the world as it provides you with a sense of satisfaction, a feeling of accomplishment and affords you with a level of financial stability you might not have previously possessed. Investing your first salary makes for a sensible course of action as it allows you to multiply your money. You can choose to invest passively, or you can choose to play an active role. Either way, investing your first salary is a wise decision.

It is important to invest at an early age and start as soon as you can such that you give the sum of money you choose to invest – which can be nominal – a broader time frame within which it can multiply. The longer the time frame you leave your funds invested, the greater the returns you are likely to accrue.

It is important to understand that there exists a difference between saving and investing and the faster you grasp onto this difference, the more likely you are to benefit from the same. Unlike saving which involves stashing your funds away and leaving them idle, investing requires you to stash them in a certain direction wherein there is a concerted effort aimed at generating additional wealth.

Read on to understand how to invest your first salary.

Tips and Tricks to Invest your First Salary

Newbies to Steer Clear of Cryptocurrencies

Those who are in their early twenties should attempt to steer clear of cryptocurrencies if they are first starting out. Despite the hype that surrounds cryptocurrencies, they are risky and require a significant amount of research prior to selecting one particular currency over another. While it is a large chunk of youngsters that are attracted to cryptocurrencies owing to the high returns they offer, savvy investors with more experience are likely to benefit from the same more. Those new to the world of investments should consider first gaining experience by investing in equity mutual funds or public provident funds.

Investing Online vs. Offline

Although there exist a wide range of brokerages online that seem to entice investors and traders alike online, starting out can be a bit intimidating. By reaching out to a distributor or fee-based financial planner (provided you can afford one), you can learn what level of risk you can tolerate and gain a clearer picture of what you are saving towards. You then have a clearer idea of what to invest in with their guidance. You also have the option to visit a number of web portals that allow you to invest in mutual funds. You can create an account with ease as they require you to submit basic know-your-customer requirements. Each online portal entitles you to create a systematic investment plan wherein money automatically goes from your bank account to the mutual fund schemes you seek to invest in each month. Public provident funds can also be invested via your bank’s online banking facility.

Saving on Taxes

Financial planners are of the opinion that those of whom have just earned their first salary often learn to save via income-tax planning. In the months of January, February and March all salaried employees are required to submit proof of expenses and investments they made to save on taxes. Here, employee linked savings schemes are relevant. Each of these schemes entitles you to tax deduction benefits as per Section 80C of the Income Tax Act of 1961.

Where Should You Invest?

You should ideally choose to invest your funds in a healthy mix of equity and debt instruments such that you create a well-diversified portfolio for yourself. The reason behind this is that different instruments and investments react differently to market conditions so you have greater protection in the event of market volatility. That being said, most first-time investors don’t always have long-term financial plans. While some might focus on their careers, others might put a pause on the same to continue with an education. Putting down money for long time frames can prove to be most challenging.

Those starting out should consider investing some of their money in a liquid mutual fund as it serves as a good contingency corpus. Not only do these funds grow at a steady and consistent pace but they also permit you to withdraw from the same almost instantly. Having access to a contingency corpus is paramount as it allows you to withdraw your funds in the event of an emergency.

Investing in a good health insurance policy with your first salary is also a good bet. The higher the coverage you avail the greater the sum assured you are entitled to. A good health insurance plan is a must as it prevents you from having to fend for yourself in the event of a medical emergency.

Should you have any outstanding education loans, attempt to foreclose them as soon as you can in order to save on interest pay-outs.

Once you have worked for a few years you can add to your investments and systematic investment plans along with investing in additional mutual fund schemes.

Conclusion:

It is important to always read the fine print prior to investing in any given security. Always invest in accordance with your risk capacity and don’t overextend yourself.

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