Personal Financial Planning For Early Career Professionals

By Ayushi Mona

This post is part of a bi-monthly series bought to you by Ayushi Mona for InsideIIM called 'Headstart'. This is the seventh post in the early career series.
Read the previous article here.

I don't know if money is the root of all evil or not but I am fairly confident that is the cause of the most confusion among early career professionals. There are so many reasons that young people struggle with managing money when they finally start earning. Some of these reasons are psychological or social. Most, however, are born out of ignorance and due to a lack of trying.

Common attitudes in younger people or early career professionals with regard to money:

1. I will start saving when I make enough: One never makes as much money as one thinks they should be making. Even if you earn 30,000 and your hope is to earn at least 60,000 with your next promotion or job change - do not be afraid to invest because you feel that you will be only able to save 10% - 20% of your already tiny salary. I frequently see people blow up an entire stipend or bonus. Start small, but start.

2. I deserve the joy my money brings me because I worked hard for it: Sure, you are entitled to the fruits of your labour and late nights. However, every penny you don't save today is a penny you steal from a time of your life when you don't have access to income (such as a downsizing) or when you no longer can work (such as retirement). Enjoy, but remember there are no limits to enjoying.

3. My CA/father/relative knows best: This is the most common attitude I see in young people I talk to. "My father manages his investment and I don't need to bother with this. I only need to focus on my career" or "My friend's CA is getting him X% return for 3 years - let me just go with him." I know it sounds hilarious when I say this but even most finance professionals get their own planning wrong. There are too many factors, products and guidelines. Trust whoever you delegate to but know and review everything.

4. I need to fit in and keep my lifestyle: This is the most difficult thing that people emotionally struggle with. Our psychological insecurities mean that we also want to travel abroad, get haircuts at expensive salons and buy everything that is best in class. We may go to college or work with people with different classes of people. Hence, it may feel weird when everyone drives to work and we take public transportation. However, remember that you can't indulge everywhere - choose one, maximum two areas of luxury and be frugal everywhere. Savings are around when most people who made you feel uncool, poor or old-fashioned aren't.

5. I need to cut costs at any cost: So far, we have only spoken of the type of people who are spenders by nature. But, there is another category - that is penny wise, pound foolish savers. During my first job, I used to live in a women's hostel in South Bombay. It was dirt cheap (Rs. 4500 for food and boarding 10 minutes walking distance from my office and 15 minutes away from the Worli Sea face if one felt like grabbing a run). Needless to say, I loved living there. It helped me save a large proportion of my tiny assistant manager salary that I was later able to use to fund living expenses during my MBA. However, the hostel wasn't fancy. You did your chores, electricity was regulated and you shared a room with 1-5 people depending on how much the warden loved you. Another girl who lived in my hostel, was an investment banker in my company (earning 5X my salary) also chose to stay there. She was completely miserable and while she justified being able to pay off her MBA loan quickly as the reason, she ruined her mental health just to adjust to the lifestyle.

Don't cut costs that affect your health. Don't cut costs on upskilling. Don't cut costs that are an investment in you as an individual.

Also, what is a cost to one can be an investment for another such as in this case. Introspect, and don't blindly follow cost-cutting or investing strategies.

6. I am afraid to take risks: There are some people who truly can't afford risk (for instance, if you are a fresher with dependents or need to pay for siblings' education). Most young people though can easily manage risks and increase their risk appetite. In fact, I regret coming to equity in my 20's and not my teens (when I first started having odd inflows of income). I am constantly amazed by how many young people love Fixed Deposits as if they were living in the era same as their parents. You can't escape risk and volatility in life, work, and your financial portfolio.

7. My parents have enough: Many early career professionals have privileged lives and rich or upper-class parents. These young folk think that they will anyway inherit their parent's homes, savings and hence they treat their personal income as disposable or worse they only save for spending. "I am saving for a new MacBook" or "I am saving for my marriage expense". While having parents or spouses as a cushion is always a welcome aspect - what if your parents' will gets contested by greedy relatives? What if an emergency like the pandemic eats into savings? Stop relying on your family and start building your own independent financial lifestyle!

8. I am doing great because I have LIC/Mutual Funds/Home Loan: There is a common Hindi phrase called andhon mein kaana raja. No where is this more common than in the financial markets. "Oh, so your parents got you tons of LIC policies through an auntie who sells policies? Great, do you need them? Are you insuring or investing?", "Mutual funds sahi hai? How many funds do you have? How did you select them?", "Did you need a home or were you just settling for your relatives?" Read, learn, research and ask what you need!

9. Retirement is too far away/I need to withdraw a little/I will only pay the minimum bill due on my credit card: Bad habits are difficult to do away with, especially those like the tendency to not pay bills properly on time, withdrawing from your savings time and again. And wondering why you need to care about a goal decades away.

10. I'm the shizz: This is an important category too. A lot of people think they know everything - they may realize the importance of beating inflation or diversifying their portfolio but even they don't know everything (including yours truly). Every day is a new day when it comes to money!

I will continue this post into the next installment where I discuss what to include, what not to and how to personalize personal finance as much as possible!

Hope this post helped you out. Watch out for the 8th article in the Headstart series soon. Share these posts and leave feedback, requests, and suggestions in the comments below!
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Disclaimer: All views expressed are personal. All information copyright with author. Protected under Creative Commons.