Managing money while living away from home

Online platforms today not only simplify and automate the investment process but also teach you how to save and invest

Managing money while living away from home

An increasing number of young individuals are moving away from their hometowns to find employment in other cities. Living away from the comforts of your home for the first time can be challenging, especially when it comes to managing money and making the salary last an entire month.

Financial planning and saving for the future doesn’t feature on the priority list for many. Though many claim to be enjoying the perks of financial freedom, numerous young working individuals display poor money management skills.

Though moving away can seem like the first step towards independence, the same does not guarantee financial independence as well. Starting from being a little cautious about spending, to keeping some easily accessible lump sum amount for unexpected expenses, and a long-term financial plan, all are important aspects of personal finance that should not be ignored.

The most common expenses for young earners living away from home include rent, food and groceries, travel, bills, and leisure/weekend activities. Starting by preparing a list of these basic expenses and preparing a budget for each will help you prioritise your income.

Smart spender

For example, allocate a fixed sum for each weekend/leisure activities of the month and try not to overshoot the budget. This will help you become a smart spender and also, help you understand how to budget expenses in a way that some percentage of the income can be left over as savings. A prioritised budget will determine if your expenses are exceeding your earnings and help you manage your finances well.

The next step after budgeting is to understand what you can do with your savings. An ideal number to save is about 30% (even 10% is good to start with) of the income.

First and foremost, your savings can serve as a financial cushion — an emergency fund that can help cover unexpected expenses such as buying new spectacles, a dental procedure, and health-related issues, among others. An emergency fund can also come to your rescue if you are in the middle of a career shift or don’t get paid.

Having an emergency fund set up that covers at least three months of expenses is ideal so that you don’t have to depend on anyone in unfortunate circumstances.

Your savings can also be useful to take some time off and travel, or try out a new activity, or invest in wellness and health, or if you have to make an unplanned trip back to your hometown. Saving such a large amount of your monthly income may mean sacrificing some comforts and indulgences in the short-term, but developing a saving habit early on will bring you closer to reaching the ultimate goal of financial security.

Invest a little time and effort to understand and learn about financial instruments that could work for you. As your income grows, you will be able to save more and also invest some amount of your income.

Identify your short-term and long-term aspirations and make a healthy financial plan to achieve the same. Thinking that a huge sum of money is required to invest is a myth. It is possible to invest in inflation-beating instruments such as mutual funds with as little as Rs 1,000.

Online platforms today not only simplify and automate the investment process but also teach you how to save and invest so that you can take care of your financial needs such as tax planning. Treat your investments as an expense and sign up for a systematic investment plan (SIP) that will inculcate the habit of disciplined investing. 

As important it is to make the right choices, it is also important to not make the wrong choices. Investing in stocks because your friend or neighbour did is a common mistake that many young professionals fall prey to. This happens primarily because they hear of a friend’s friend getting exceptional returns and don’t really understand how stock investments work.

If you have just started earning a salary, chances are that you cannot immediately afford a car or an expensive gadget you’ve always wanted.

To fulfill those needs, it is not wise to take on loans or EMIs during the first year depending on your income, as they will recur monthly regardless of your financial status.

Another important point to keep in mind is the usage of your credit card. You should always ensure your credit card bill doesn’t exceed 30% of your monthly take-home income. It can become a liability and can convert into a high-interest debt if left unpaid.

Spending within your means often requires you to stick to a strict budget, pay your bills on time, and keep track of your expenses to ensure you are utilising your income in a way that is advantageous to your future. Incorporating these simple money management practices can help you become realistic about your finances so you can start saving for the secure future you’ve always wanted.

(The writer is CEO of Scripbox)

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