Making the most of your salary

One of the most awaited messages on mobile number is: “Your salary has been credited to your account”. Immediately thereafter, the recipient of the message starts pondering over the amount to be set aside for various purposes and the payments that need to be made during the next one month. This exercise is more productive if it is done in a systematic and well-planned manner. Here’s how:

Budgeting: It is an exercise wherein you take into account all your sources of income and expenses and set aside the amount required for all your monthly expenses from the salary. The list of expenses can include groceries, electricity bill, gas bill, credit card bill, internet charges, rent/society charges, life insurance premium, health insurance premium, etc. After one has deducted all these expenses, one can set aside some amount for other expenses such as entertainment, travel, dining out, etc. Budgeting should become a monthly habit so that, over a period of time, you have an idea of all your monthly cash inflow and outflow (income and expenditure) and can plan your budget accordingly.

Liquidating debt: It is imperative to pay off all your debts as soon as possible and save on interest expense. Repaying high-cost debt such as credit card loan or personal loan should be your first priority as these can eat off a chunk of your earnings. You should try to prepay other debts such as home loan or car loan as, over the long term, the interest costs on these loans works out to be substantial.

Investing in future: The amount that is left after all these allocations is the amount you save from your salary. This amount needs to be utilised for investments to achieve your financial goals and build wealth for the future. The higher the amount you save from your salary, the more the amount available for investments. Investments need to be made for the short term as well as long term and the amount to be allocated between the two will depend on your financial goals, risk appetite and your return expectations.