Personal financial planning helps you to create an organized step-by-step roadmap for circumventing any financial obstacles and achieving your goals. If you are someone on a salary, it’s essential to equip yourself with an appropriate economic goal. It will help you secure a bright future for Salaried Employees and your loved ones and become a stepping stone in achieving financial independence.
Hence, if personal financial planning seems overwhelming and you don’t know where to start, here are a few financial tips for salaried individuals.
What Must Personal Financial Planning Include?
A checklist for financial planning for salaried individuals must include the following, if not others:
- Financial Goals: List your short, long, and medium-term goals
- Net Worth: Assess your total assets and liabilities
- Budget: Fix a budget based on your wants, needs, and savings
- Planning: A well-laid-out financial plan that takes your age and experience level into account
- Emergency Nest Egg: Portion of savings for contingencies and other emergencies, that can also help you cover your retirement expenses.
How to Create a Personal Financial Planning for Salaried Employees?
- Plan Your Investments: When building on savings, it is advised to invest your savings into a diverse portfolio of both high and low-risk investments like stocks, mutual funds, gold, real estate, etc. Investing in a mixture of high and low asset classes will prevent a majority of your money from being lost due to market fluctuations. Hence, your money will earn you your passive income.
- Insurance for Your Family: Investing in insurance is a vital part of your expenses once you become a salaried individual. Your income should always come to your aid in times of an emergency, and insurance, both life and medical, is a definitive way to do so. Insurance acts like a safety net for you and your loved ones and dependents. Be sure to read all terms and conditions properly and choose a plan that benefits you and your family the most. Term insurance is the most top-rated and advised.
- Goal-based Investments: Once you start saving, it’s wise to invest to get better returns. Setting up a goal-oriented investment for the long term takes time, and you should try to set a duration that suits you. When it comes to goal-based investments in India, fixed deposits (FDs) and of deposit (CDs) play a central role. FDs provide capital preservation, predictable returns, flexible tenures, and a regular income stream, making them a reliable choice for investors uncertain about risks. Alternatively, CDs offer higher interest rates, customizable investment horizons, liquidity options, and diversification benefits. By integrating FDs and CDs into your investment groups, you can passively create maximum returns while targeting specific financial goals.
- Debt Management: Financial planning for a salaried individual is daunting, but dealing with debt is worse. Often, we take on expenses that are more than our cash flow and land in debt. New employees should be wary about spending on credit cards and making any big, impulsive purchases. Experts suggest that your debt shouldn’t be more than 50% of your income. If you see an increase in income, make an increase in your debt payments, to clear it off earlier than before. Additionally, you can use the snowball (low-interest debt first) or avalanche (high-interest debt first) method to clear off debts.
- Improve Your Salary Structure by Planning It Well: It is easy to save money on your salary if you understand the taxation procedure and alter your salary structure to benefit you. Basic pay, House Rent Allowance (HRA), Dearness Allowance (DA), and Special Allowance are the important elements that make up most of your salary. All of these, except for HRA, are fully taxable. Decreasing total basic pay and changing it into perks and long-term benefits is one way to decrease tax amounts. Moreover, higher basic pay means higher DA, HRA, and PF contributions. The higher DA is taxable while the PF is tax-free. Personal financial planning can be ensured by being more tax-efficient and modifying salary structures.
- Draw a Budget: To draw a realistic budget, you can use the 50/30/20 rule. This helps you to assess your net worth and spending capacity and provides you with a framework to achieve your life goals. The rule states that 50% of your income should be allocated for day-to-day expenses like food, rent, gas, etc. The other 30% should be assigned to substantial but not current expenses, like purchasing a device or going out for recreational activities. The last 20% of your income should be for emergencies and will work as your savings.
- Build a Retirement Corpus: Aim for a retirement fund at least 20 times your annual expenses. The current scenarios may change so you have to factor in elements like additional costs, emergencies, inflation, etc. Draw a retirement plan according to all these factors. You can also apply to some pension funds in the public and private sectors.
Conclusion
Personal financial planning seems like an uphill journey, but it’s relatively easy if you follow these guidelines. By identifying the weak areas, managing your income, multiplying your savings, and eliminating your debts, you are already one step closer to financial independence.
