As a part of a collectivist society, Indian families have a way of keeping an eye on you, even when you’ve achieved the well-respected tag of financial independence. How you spend your money and your time is of utmost importance to the family, and more often than not you have no control over your own finances. Don’t get me wrong, I love that at 26 my mother still calls me to check if I need any extra moolah, but a couple of years ago, I also realised that I could not file my own taxes because I had no idea where money was invested in my name and how many bank accounts I had. That got me thinking about how I would navigate without my parents, and compelled me to ask them for a rundown of my financial situation. That’s when I realised, I had no idea on how to adult! I knew the basics like getting a job and trying to save, but what about the rest of the stuff we have to do to secure our own future?
There are millions of young adults joining the job market every day, and I know how adulting can be overwhelming in the financial sense of the word. So here’s an Adulting 101 guide for you:
More often than not, your parents will take care of the very basics, but I need to address them just in case. The first step of becoming an adult is getting your PAN (Permanent Account Number) card made. This is a unique number assigned to an individual, which assists in recording all your tax information in one location. The next step would be to open up a savings account linked to your own cell phone number and email ID. If your parents receive your bank statements and transaction information, you could always talk to them about transferring control to you. It’s a simple process of updating existing number and email ids with the bank.
It’s Time to Save!
Everyone’s heard the saying “save for a rainy day”, and you absolutely must. It’s an exhilarating feeling, when you make a large purchase with your own hard earned money. Figure out your goals, and save money accordingly. Saving 10% of your salary is somewhat of a golden rule (although it will increase as your salary does), as is ‘income minus savings equals expenses’. If you are unable to save the money because of its accessibility, you can always start a recurring account. They’re extremely easy to open, and you can do it on your net banking portal. This way, on a set day every month, the amount you decide will leave your account and return only after the given period of time, with an added nominal interest! (talk to your bank manager for information on interest rates and savings schemes). You also don’t want to get a credit card for the first four years you work; you never know how much you end up spending when you’re relying on them. Psychologists believe that the pain of purchasing is less when people use credit cards, as opposed to cash, which is why people tend to overspend when using credit cards.
First of all, paying taxes and filing them are two very different aspects of finance. If you’ve gotten yourself a job, you don’t have to worry about paying your taxes; your company does that for you. Your job is just the filing, which you can do by the end of July for the previous financial year. The previous financial year is essentially the 12 month period from 1st April to 31st March of the year you are in. The assessment year is the year you are in, where you assess your income and file them accordingly.
The first step to filing your taxes would be to understand the various components of your salary; this way you can understand how much money would be deducted from your salary to pay your taxes. You would then have to understand which other sources of income you have; do you have any property in your name? Have you sold something valuable through the year? All this would factor into your tax filings. Also, deductions are important, and Section 80 C is your best friend. It’ll help you save a lot and includes the absolute basics. These deductions are extremely important when it comes to filing your taxes because it will get you some money back! Income tax can seem daunting, and the jargon during the process is more overwhelming but it can be handled, one step at a time. As an individual, you can handle both these aspects here.
Now, depending on your needs and wants, the way you plan your finances are of utmost importance. If you are young and free, you might decide travel is your largest expense or maybe you want to buy a car. If you just got married, maybe you’re looking to buy a house. Whatever the expense, three aspects need to be kept in mind: your take-home income, the down payment, and the rate of interest on a loan (if you need to take one). This can help you assess what you can afford to buy.
A Demat account or a dematerialised account is an account to hold shares, mutual funds and bonds during online trading. Your investment requirements change depending on how old you are, and what your requirements are. As someone under 30, you can have 70% of your investable surplus invested in equity. As you grow older, you might slowly increase your investments in debt, as it is less volatile and emits stability. Your bank will usually have a brokerage associated with them, which will help you open one up. They will also provide you with some amount of guidance regarding how to invest your money, which is extremely helpful; especially if terms like equity and debt are alien to you (they were to me when I started out). If you aren’t so sure about investing yet, and want to understand how its done, there are plenty of micro investment sites available now, where you don’t require large sums of money to get in the game; you can start investing with a sum as low as Rs. 500.
You’ve just started your career, and are wondering if you need to already start worrying about your retirement. Well, it would be ideal to do so. Check with your employer about the Provident Fund deductions from your salaried account. Ensure that your PF deductions are suitable depending on your income package, etc. In addition, most financial planners suggest that 20-30 times your annual income is the right amount you should aim for when it comes to saving for your retirement. 30 times is considered safer, considering that inflation is a very real occurrence. When looking at retirement as the long-term goal, many young adults choose to aggressively invest in equity; the more the risk, the more the reward.
Adulting can be extremely overwhelming, but there comes a time in every new adult’s life when they realise they need to understand their place in society better and plan for their own future. Tackling one aspect at a time can be extremely helpful, and makes all of this seem doable. If I can do it, believe me, so can you!