Budgetary Constraints
Fresh out of B-school? Pay attention: Financial planning and budgeting are essential for young professionals! Varun Reddy Sevva

inancial planning, in layman’s terms, means keeping track of your incomes and expenditure so that you are able to cover your expenditure, and at the same time, can save for the future and get better returns on your savings. Sounds easy, doesn’t it? Well I’m afraid it is not as easy as it looks. It is quite tough for us young professionals to keep track of our finances, especially during the first few years in the workforce. Planning for the future is rarely on the top of anyone’s list. Real estate prices are soaring. We have lots of manpower, but face a shortage of skilled personnel. Student loans are at an all-time high, and the price of milk and other essentials (that does not include beer!) are reaching the skies. To top it all, the stock market is wobbly and the economy seems uncertain thanks to an indifferent political climate. The fact that we have low financial awareness doesn’t quite help in this matter either!

In a report released by one of India’s leading insurance companies, it was clearly outlined that the overall 'Financial Awareness Index' for Indian consumers is quite low; most consumers do not take into account inflation, interest rates or unexpected events such as accidents, death, or natural calamities during financial planning.

STICK TO A BUDGET
Make a budget, which includes rent, groceries, transport, and allied costs, coupled with other incidental expenses, and stick to it. Avoid the temptation to live a costlier lifestyle simply because of a boost in your cash flow. Make a list of everything on which you’re currently spending money. If there's nothing left over to save at the end of the month, go back to the drawing board and cut some expenses. As a youngster, you can always take the more aggressive approach to life as you have comparatively fewer responsibilities at this stage of life.

PLAN IN ADVANCE
Although there will be several expenses that you have to take care of - even in the initial years in the workforce - the chances are high that you will be able to save a lot more money. Plan in advance for several inevitable events: For example, you might get married 5-6 years down the line (assuming you are in your first job by the age of 22-23), or you might want to buy a car or a house.

BUILD AN EMERGENCY FUND
Most young professionals recall the recent ‘slowdown’ when there were many salary cuts, and everyone felt a fear of job losses on account of global turmoil, as they were directly (campus placement downturn) or indirectly (dependants losing their jobs) affected by it. There may also be times when you may have to take care of your parents, or other medical emergencies that are unprecedented. So it makes sense to build a fund/corpus equivalent to about six months of your current salary as an emergency fund - a pool of cash which could come in handy intimes of crisis.

USE CASH WHEREVER POSSIBLE
I can say it from personal experience – using cash (or a debit card) is the best way to keep a tab on your expenses. It is no secret that we check out our bank balance more often than we do our credit card usage. It’s deceptively easy to splurge when you use a credit card. Keep a credit card only for personal emergencies, and try to use cash/debit cards for all transactions below `5000. It helps you keep a tab on your impulse buying, and makes you ask the much-needed question: “Do I really want this? Why?”

COMPARE AND ANALYSE
Before making any financial transaction, you must ask yourself: “Is this the best deal for me? Can I do better?” It could range from getting a cheaper loan, to the best insurance, to a lower interest rate on a bank-loan. Anything that helps you save a few extra rupees will go a long way in increasing your retirement corpus. And yes, talking about retirement…

START SAVING FOR RETIREMENT
When it comes to retirement, the message is simple: Start soon. Ideally you must be able to save at least 15% of your annual income. Most youngsters are not even aware of the amount of money they’d need to maintain their desired lifestyle after retirement. Open a Public Provident Fund account and divert a percentage of your funds regularly to that account. I emphasise upon the word ‘percentage’ here, because the more you earn, the more you save. Keep increasing that percentage till you find your stable value – typically 20% of your income. Keep in mind the tax savings behind every scheme. Inflation must also be accounted for before making any such decision. But you cannot save each and everything you earn – you also have to...

START INVESTING EARLY
Those who are serious about their financial future must invest whatever capital they have early on. Starting early can give young people the advantage of being able to enjoy the fruits of their investments earlier. There are now many investment opportunities available that do not cost that much. Investing only after they have more cash doesn't seem to hold anymore nowadays. Smart investments reap greater fruits.

DON’T NEGLECT INSURANCE
Our parents are smart – admit that! Make sure you use this to full effect. Most of us live our lives not even aware of the policies that our parents have bought for us. Of course, it does helps if your parents involve you in the financial planning process as well. Talk to your parents; try to understand what policy they chose for you and the parameters they used to select that policy. Do a bit of market research, and select the insurance that gives you better returns. I would suggest a term life-insurance plan – which does not give any returns, but costs a pittance in the long run as compared to other plans.

DON'T COMPARE YOURSELF TO YOUR PARENTS
My dad keeps telling me “By the time I was 28, I had a house of my own, without any debt.” After I started earning, I told my dad, “Even if I save 50% of my salary for the next six years I won’t be able to afford a house of my own, unless I want to live somewhere really far from the city. At best, I will be able to make a decent down-payment.” You have to work with what you have; make sure you first learn to appreciate what you have. Don’t keep your expectation way high than your limits, and don’t let your parents intimidate you. Instead make sure you live a similar, if not better lifestyle, by the time you reach their age. And finally…

MARRY WISELY
This does not seem to be much of a financial tip. However, as a couple, you and your spouse will be responsible for your family, and it would be wise to choose someone who shares the same ethical, moral, and financial values as you do. When you’re married, you share both your assets and your liabilities. So, your finances too need to be planned out together. Couples should set goals and jointly chalk out plans. Discuss finances so that one partner can take charge if the other is unavailable. Communication with your partner is essential. Good communication will enable better handling of emergencies.