Have you been lately thinking of utilizing your salary in the best possible way so that you can spend, save and clear off debt before time?
Well read on, we have you covered in this article that speaks about 11 important things to do when you get your salary.
If you are anything like my previous self, salary for you is that elusive, dreamy entity that comes after a long wait, and vanishes fast, usually leaving us clueless as to where it all went.
Like a lot of salaried people, I had poor money-management skills.
As a consequence, I would find myself borrowing petty cash from family members towards the end of the month for basics.
such as commuting to the office and tiffin.
This cycle continued until I made some serious contemplation, checked my spending patterns, did some research on the internet, and came up with this.
11 foolproof ways to handle salary such that I was spending, saving, and even investing – something that I had never done before.
Interestingly, salary is derived from the Latin word ‘sal’ meaning ‘salt’.
Salt was as precious as gold in ancient times, mostly due to the difficulty in its procurement. So people were paid in salt instead of their hard work.
Let’s ditch the etymology and dive into those 11 important things to do with your salary.
Pay Your Utility Bills
The first category of expense you should deal with is utility bills. Utility bills include rent, electricity, water bills and gas bills. Some additional utilities include phone bills, internet and cable bills.
Missing out on payment of utility bills may mean late fines and disruption in service. You can set yourself reminders to enable timely payment.
Add to the above list your housing maintenance fee and fees to your service people – driver, cook and house helper. These are folks who ideally should be paid within the first 7 days of every month, preferably within the first 3 days of the month.
Pay Your Mortgage and Loan
Almost as equally important as paying utility bills is paying your mortgage and loans. Loans must include any loan that does not incur interest. For example, the loans taken from family members.
Your loan and repayment history affect your credit score, and therefore repayment or interest payment cycles should be taken seriously.
A good credit score qualifies you for bigger loan amounts, should you need any. Eligibility for most credit cards is also dependent on your credit score.
Pay your Credit Card outstanding
One of the most vicious debt traps that millennials fall into is not paying their credit card dues on time.
Credit Cards earn interest on interest, and you should ensure that you pay the total outstanding amount within the 50-day credit-free period.
A lot of people think that paying only the minimum amount due will be enough. However, the minimum due usually constitutes only 5% of the outstanding balance and is levied to ensure the smooth functioning of the card and evade late fees.
You still accrue interest upon the outstanding amount, and before you know, you’ll have a huge amount of unpaid outstanding + interest to be paid.
Eventually, credit card department agents start hounding you with phone calls and visits to pay off the amount. You definitely don’t want that to happen.
A credit Card is a wonderful tool that helps in saving money.
But before you get one, you need to do some research as to which card will fit your spending pattern. We have done the hard work for you in our cards section. Check out our extensive review of cards, and see which one will give you the maximum savings.
Grocery and Other Consumer Spends
As per statistical data published by ValueChampion, Indians spent 27.9% of their income on groceries in 2017-18. This is higher than the average suggested percentage of 8-10%.
Being a country that relies heavily on home-cooked food, it might not be feasible to drastically reduce grocery spending. Ideally, if we can keep grocery spending within 20-22% of our income, it will help maintain the expenditure balance.
That said, one should never compromise on health and healthy food.
I would strongly suggest against any compromises in expense in the grocery category. We have all understood the importance of healthy eating in modern times. Indians have had a higher recovery rate thanks to their eating habits.
The 50-30-20 Rule
As per the 50-30-20 rule of budgeting popularized by Elizabeth Warren in her book All Your Worth: The Ultimate Lifetime Money Plan, 50% of your income should go to the above 3 categories. The above categories comprise absolute needs and facilitate survival in society.
It is worthwhile to do quick math after you have handled expenses in the first 3 categories to see if the total expense of these 3 categories is 50% or less of your income.
If your spending in these categories crosses 55% of your income, it is time to rein in and see ways of bringing it within 50% of your income.
Money to Parents, Siblings, or Kids
Truth is, most of us earn for others.
The others could be our family or even friends.
I mean, who do you party with on weekends? Friends, right? Even if you pool-in money for a get-together, you are eventually spending it on having fun in the company of friends.
You probably wouldn’t do half the things you do with friends if you were alone and had no one to share the fun with.
We should always prioritize the money we give as pocket money to our children or money to parents so they can spend it on their needs and wants.
This category of expense should never be an optional one. When we set aside a percentage of our income for our parents or siblings or kids, we are essentially taking care of their needs and wants without them having to ask us all the time.
Keep aside for transportation and food for Office commute days
If you travel by metro or local trains, make sure you get yourself a travel card.
Refill that card every month. If you take additional transport like rickshaws, keep aside the petty cash needed for your travel.
If you are in the habit of buying tiffin for the office from outside, keep aside the cash needed for the same.
You should also keep aside for the bad days when you have to take a cab due to rains or due to stretched shifts at the office.
Keeping a good Rs 1000 tucked away in a corner of the purse always helps in dire emergencies.
Track expenses on an expense tracker
If you still do not use an expense tracker, you should download one right now, and start jotting down your expenses. Spreadsheets are fine, but honestly, how regular are you in updating your spreadsheet tracker?
We have compiled a list of the 8 best expense tracking apps available in Google Play and the iOS App Store. One of those apps will surely suit your tracking needs well.
The apps range from the fuss-free ones to the ones that track your investments, loans and a lot more. Most of the apps have the budget feature, too.
There is a popular saying “What you measure, grows”. This is particularly true of financial goals. If you cannot measure where your expenses are heading, your investment and saving goals might not materialize properly.
Once you start tracking your expenses, you can properly allocate them to each category.
You can also check on mindless spending ( e.g., too much spending on weekend entertainment) and create realistic financial goals.
Invest in PPF, Bonds/Shares or a Recurring Deposit
Whether you are a risk-taker or prudent with your money, you must start investing at least 15 – 20% of your income.
Investment goals differ – some people invest for better returns for a financial goal in the near future, while some people save for old age or for some unforeseen medical emergency or a bad time. Whatever your goals, investing is a must, and the earlier you start investing, the better.
While investing, you must do careful research of the
- return the investment will give and the kind of return, eg. interest only, principal sum+ interest, etc.
- maturity period, interest-paying period, and benefits of a possible extension of the investment.
- risk associated.
- hidden charges, if any.
Stocks and bonds are great markets for investment if you are willing to take risks with your money. There is also an emerging market for mutual funds and ETFs if you are a calculated risk-taker.
If banks are your choice of a reliable financial institution, go for a PPF or a recurring deposit. A PPF usually has a maturity date of 15 years and suits long-term investments.
A Recurring Deposit (RD), wherein you have to deposit a set amount of money every month, is best suited for short-term investments.
Both PPF and RD have better interest rates than current bank savings account interest rates (as of September 2020).
Bringing up the salt analogy again, like too much salt in a dish, destroys the taste. Too much investment in one sector affects your financial portfolio. Allocate your assets wisely so that you reap maximum benefit from your investment at intervals that aid your life goals.
Buy Health Insurance or Pay Your Premiums
According to a report published by the India Brand Equity Foundation, life insurance premium amount collected in India has grown over Rs. 4. 5 trillion from 2012 to 2020.
You can invest in life insurance or term insurance depending on your requirements and the kind of coverage you are looking for.
Your investment tracker can notify you of upcoming premium payments.
If shelling out a premium amount at one time shakes up your budget, you can either opt for a monthly payment of premiums or save each month for upcoming premium payments.
Buy that one stuff that will make you or someone you love happy
Savings and investments are good, but we should not turn into money-saving robots in the pursuance of our financial goals.
We should not stop living now in order to save for the future that’s not even there.
Keeping far-sightedness within limits, we must indulge in life’s happiness and not deny ourselves things that may not have great financial value but might bring us the happiness we all seek.
So do buy that flower for your partner, get yourself that wallet you have been eyeing for some time, or replace your mom’s keypad phone with a smartphone.
While savings can be counted, the happiness that a small gift brings to our own selves or to our loved ones is priceless.
Donate to a Cause or Charity
Personally, I believe that our financial goals must include a charitable cause or a goal toward giving.
Well, it might, but imagine a world where everyone is thinking about their own selves and their respective families without extending some help to the poor and the downtrodden. It’ll be a crude world with a lot of financial disparity.
If you have managed to earn yourselves a comfortable living, it is a moral obligation to extend help in the form of donating to a charity, to a cause, or even to help the local poor people a little.
You can start small. There are numerous organizations, valid ones, that ask for small donations to sponsor a child’s education. You can also give for relief funds.
You can help in your own small way the people asking for alms outside the rail station or metro station. Giving is a noble thing. Unless we give, we cannot receive the abundance that the universe has in store for us.
Do you have suggestions on better things to do when you get your salary?
If yes, feel free to suggest those in the comments below. We might as well include that!