Things About Managing Money I Wish I Knew Earlier
Everyone’s relationship with money is different based on how we’ve grown up. When I started earning money, there was a lot I didn’t know. It was the first time I had money, and I was scared to lose it, to spend it, or do anything with it. I just wanted it to sit there and keep accumulating. I had heard horror stories of people being irresponsible with money and losing everything, so every time I spent it, I felt guilty. I would question every purchase and ask myself if it was “worth it” or if I really “needed it.” Not a fun way to live, let me tell you.
Since then, I’ve spent a lot of time educating myself and improving my relationship with money. This blog is going to provide advice I wish I had gotten when I was starting out. Hopefully, it helps someone :)
Disclaimer: I’m not a financial adviser. This is just based on my experiences and things I’ve learned. Getting started is so overwhelming that most people quit learning, which is why I’m going to try to keep things as simple as I can. You should definitely read more about the things I mention here before making any decisions with money. Also, finance isn’t a one-size-fits-all, so this advice might not be relevant to you depending on your personal situation. I’m not responsible for whatever happens with your money based on decisions you take after reading this. Mutual fund investments are subject to market risks, so read all scheme-related documents carefully :)
Phew. Now that we have that out of the way, let’s get started.
Use Multiple Accounts!
I had heard this many times, but I don’t know why I always procrastinated opening another bank account. Probably because I’m lazy and hate dealing with bank employees, but anyway, trust me when I say you NEED to have multiple accounts. It makes managing money so much easier.
Here’s what I do currently: as soon as I get my salary, I send a certain amount to a different account. I like to call this my “expenses + guilt-free spending” account. Any money in this account left after covering my monthly expenses is guilt-free spending. Always questioning if something you want is really worth buying or not messes up your relationship with money a little. I now give myself permission to spend any money in this account on anything—whether it’s worth it or not doesn’t matter. That fancy place you wanted to eat at but know is overpriced? If there’s money left in this account, then why not!
If I run out, then no more spending for the month. If I need to get something which is more than the budget for guilt-free spending, then I need to spend less this month and save up. Simple as that. Some people even invest this spending money to put it to work for slightly longer goals like vacation planning or buying an expensive thing you want, but when getting started, don’t overwhelm yourself. Set up a system first and then think about optimizing individual aspects of it.
The rest of the amount that remains in the salary account after sending money to the spending account gets invested (more on that later). Money present in the bank account has a tendency to get itself spent, so it’s best to invest within the first week of receiving your salary.
This is my system. You need to think of a system that’s relevant to you. Some people suggest opening a third account where you send the money you want to invest right at the start of the month just like you do with the spending account. I don’t do that and instead just use my salary account for investing as well, but if you’re starting out and don’t have that habit, a third account might help enforce discipline.
Build an Emergency Fund First
The first thing you should do when you start earning is SAVE that portion of the money that’s left after sending money to the spending account. I’d say save until you have about 3-4 months of your salary. This is your emergency fund. The purpose of this isn’t to grow your money; it’s to cover emergencies: you get laid off from work, there’s a medical emergency, or anything else. I’d earlier said 3-4 months of your salary is a good amount, but again, take that with a grain of salt. You need to think about what’s an amount that you’re comfortable with keeping for emergencies.
Once you have this amount, put it in an FD. Again, on the internet, you’ll find people arguing about how liquid or debt mutual funds are better than FDs for this. I don’t want to go into all of that for the sake of keeping this simple. You can go that route if you want. The only thing I want you to take away from this is that you shouldn’t think too much about what returns you’re getting from this money, but instead think about how easy it would be to get access to this money immediately when you need it in case of emergencies.
Don’t Let Confusion Get the Better of You
There’s just so much info related to finance right now and everybody is trying to sell you their platform or mutual fund or stock-picking course that it’s easy to get overwhelmed and go into research mode, which just leads to procrastination on taking a decision. Where you invest is an important decision which you should think over, but in my opinion, that decision isn’t worth delaying starting to invest. If you find a better instrument later, you can always switch.
Invest in equity only the money you feel you don’t need for the next 5 years at least. Because equity is volatile, don’t invest money you feel you would need in the next 5 years there. This is exactly why I suggested building an emergency corpus so that in case you need money, you can rely on that corpus instead of selling your equity investments when they might be at a low. God forbid something happens and you end up using your emergency corpus; then stop your investments until you’ve built that corpus up again.
If you have any short-term expenses coming up, like in less than five years, then invest for those before investing any amount in equity. For this, you might use a debt mutual fund or arbitrage mutual fund (FD is also fine if you’re okay with slightly lower returns).
Now, coming to where to invest if you’re feeling overwhelmed and just can’t make a decision, I would suggest just sticking with investing in the Nifty50 index. This index represents the average of the top 50 Indian companies listed on the National Stock Exchange. There are multiple ways to do this. I initially started investing in it via the Nippon NIFTY50 ETF, then later switched to the UTI Nifty 50 Mutual Fund. You can’t go wrong with any of the major MF houses, so don’t procrastinate too much and just pick one up. It’s advisable to fix a monthly amount and keep investing this (also called a SIP). That not only enforces discipline but also ensures you don’t end up spending money lying around in your account :)
Conclusion
There’s so much more to finance and managing money that I’m still learning as well. But this is all the practical advice I’ve learned so far that worked for me. Emphasis on the for me part. I’m sharing this in hopes it helps someone who might be as confused as I was when getting started and helps them create a system of their own. I feel obligated to say please, please do your own research as well. And again, this is not me guaranteeing you any returns in the stock market; I’m just sharing what I learned and now follow. I’m not a financial adviser; please don’t come after me with pitchforks if you see the markets or your investments going down. Thanks for reading, and I hope this was helpful!