Maybe it’s just me, but I always thought being financially stable is a) making a ton of money, b) trying to spend as little as possible, and c) if you do end up forking out a sweet part of your paycheck on an impulse shopping trip – which is going to happen – try again next month. Savings meant intentionally forgetting a chunk of funds until I made my way to the mall and swiped it out for that one pair of expensive shoes; and TDS – what was that?
If you’re anything like me, you don’t have the slightest idea too. But the thing is, in addition to being twenty-somethings figuring out how to adult, we’re also supposed to be independent young people, guys, and that means having our finances sorted. So let’s begin the new financial year (that what it’s called?) by getting the greens in order!
I spoke to Pavan Talreja, a practicing chartered accountant who’s been in the industry for 7 years (and is in his 20s himself), to explain the basics of how to manage your money today and have some left to spend your retired life in a beach house like you always wanted to. Take notes, please.
1/3 BUDGETING YOUR LIFE
Ever heard of healthy spending? No? Yeah, thought so. It’s basically budgeting your income on priority basis.
“It’s when you spend at least a third of your income on non-depreciable assets like land and debentures - which are investments that yield interest, half of your income on necessities and luxuries, and the remaining on the future like retirement dreams, business investments or medical emergencies,” says Pavan.
Here’s how you do it:
1. Total your monthly income.
2. Cost your necessities – ranked in order from ‘absolutely cannot do without’ to ‘I can probably manage without it’.
3. Cost your luxuries.
4. Allocate your income accordingly to each of these causes.
5. Make sure you have some left to save.
2/3 SAVINGS & INVESTMENT
Turns out, saving isn’t something you start when you’re not crazy about buying makeup anymore (because that’s not going to happen).
“You must start saving as soon as you’re exposed to money. Remember, your dreams, marriage, children, home ownership, major medical events and caring for your old folks – all of these depend on your spending and saving habits – so start now!”
A key tip to always keep in mind: “Ideally, don’t save from what’s left after spending, instead, spend from what’s left after saving,” he advises. In other words, save first, spend second – that yacht ain’t buying itself.
Secondly, if you haven’t realized, our life span has now become shorter – entrepreneurs aim to make it big early and retire in their mid 40s with a comfortable bank balance and investments to have their children covered. So don’t regret blowing it all up in the spirit of YOLO – be that parent who’s loaded and dishes out money advice from experience.
Also, a special note to budding entrepreneurs: “You’re going to have to hunt for investors and turn to finance options that’ll eat into sizeable profits, in turn limiting your growth. Just imagine your growth rate if you had your own savings to aid your business. Trust me, you don’t want to be a debt-burdened entrepreneur,” he warns.
If you aren’t scared off already, here are some of the best way to save up courtesy Pavan (presuming you’ve budgeted your income already):
1. Take baby steps - Start saving small amounts. For example, keep depositing small amounts in your recurring deposit account. Consider Systematic Investment Plans. Open a fixed deposit account.
2. Avoid unnecessary expenditure - We get resisting those Gucci fur loafers takes physical strength, but learn to say no to yourself when you can do with say, the Rihanna X Puma fur slides – a way more affordable (yet totally swag) alternative.
3. Go easy on the credit card - It’s only safe to get yourself a credit card if, a) you’re decent at exercising control over your expenditure, b) you’ve made reasonable savings/investments and c) your business has started paying back reasonable returns if you’re an entrepreneur or when and you think you’re well settled in your job and your skills can get you another job easily without a long break. If you don’t tick off all these boxes, stay away from the plastic.
3/3 ALL ABOUT TAXES
The good thing about living in organized society is that you don’t have to swordfight your way to survival, but the bad thing is you have to pay your taxes.
Let Pavan explain: “By law, every earning citizen is required to file their tax returns on time – you definitely don’t want to pay interest and penalties on one side and strive hard for that income, especially with the increased cost of living. Luckily, India has one of the best tax saving options to avoid heavy taxes – remember, avoiding tax is not a crime, but evading it is.”
When it comes to filing your returns, contrary to popular belief, the process is fairly simple – but there’s lots of room to slip up.
“Most people get into trouble filing incorrect or incomplete returns. That’s why, getting a tax expert to assist you is a good idea. If you’re having second thoughts about that as an extra expenditure, don’t, because you can rest assured that you’re going to benefit way more than what you’ll be paying them. If you mess up, you’re definitely going to need an expert and then they won’t come so cheap.” So unless you’re tax law-savvy and constantly updated with the latest changes, save yourself the trouble.