How to Start Investing with Your First Salary

 

By now you have probably been advised to start "investing" by your friends and family. But where do you start? How much do you invest? What do you invest in? Read on to figure the essentials on saving and investing your first income.

Step One - Protect yourself with a life & health cover

The first (and most important) element of any personal financial plan is protecting yourself and your loved ones. Life is always unpredictable, and one should always ensure that a portion of money is saved toward meeting medical expenses and supporting dependants in case of unforeseen events.

Buying insurance when you're young and healthy is extremely advantageous, as you'll have to pay much lower premiums compared to someone older.

Step Two - Define your goals

Now that you're protected, it's time to talk about investing.

But first, what are you investing for? A new bike? A foreign trip? Your future marriage? An MBA abroad?

Write down all of your short-term, medium term and long term financial goals (that you can think of), along with the amount of money you'll probably require for each of them. This will give you a proper idea of your financial needs in the coming years.

Step Three - How much risk can you handle?

Being aware of your risk tolerance is extremely important for determining where to invest your money. Investing in Equity market products (which deal with buying and selling shares) involve exposure to some amount of risk, as the value is linked to the performance in the market. However, high risk also means a possibility of high reward; We've all heard stories of people getting rich merely by trading in stocks.

On the other end, we have products dealing in the debt market (eg - Bonds) that are relatively safer, but generally do not offer returns as high as equity products.

So which type of product should you go for? That completely depends on how comfortable you are with risk.

Step Four - Save your income

In order to invest, you'll have to save! Ensure that you keep aside a portion of your monthly income purely to invest for the future. It is certainly tempting to spend it all, but without disciplined savings, even the best investment plans will not work out. As our compounding calculator will show you, saving and investing at a young age can lead to building a financial corpus.

Products, like Life Insurance, require mandatory periodic payments. This is a great way to ensure continuous, uninterrupted savings.

So now, the big question where should I invest?

Insurance products would make an ideal first choice as you can be rest assured about your family's well being in your absence.

By Parijat Mishra
HDFC Life

ARN: ED/07/19/14721