Apoorva receives her first paycheck and can’t stop gushing. She wants to treat her sister Riya out for dinner. A proud Riya has other plans for Apoorva’s first paycheck. She knows that a first paycheck is special but it’s also a big financial responsibility. If she can teach Apoorva a few things about her first paycheck, Apoorva can become financially independent.
Apoorva draws up a list of all the things she can do with her first paycheck:
Riya takes a look at the list and chuckles. She reminds Apoorva that at this rate her salary will disappear as quickly as it appeared. Apoorva realizes that she was overwhelmed by happiness and lost track of the most important money lesson – always save first.
But what could Apoorva possibly save for? It seemed so much easier to spend on something than save for nothing. Riya reminds her that she can still spend on herself. The purpose of being an earning member is to enjoy your money now and in the future. She redraws the list:
With the new list, Apoorva learns how to prioritize and balance her financial commitments. Riya teaches her how to draw up a budget. They start by fixing how much Apoorva will save every month and then move onto her fixed and discretionary expenses. The budget will ensure that Apoorva knows when she goes overboard. It also guarantees that no matter what Apoorva does with her money, she’s saving enough.
Apoorva fishes out an incredible new credit card offer. She is eligible to spend up to Rs. 1 Lakh a month on this card and has to pay only a few thousand rupees each month. A credit card could help a long way in case she goes overboard with spending. Riya’s more suspicious of this offer, many of her friends are repaying credit card loans and pay anywhere between 20%-40% interest every year. When she reads the fine print on Apoorva’s card she realizes that:
They decide that Apoorva’s not ready for the financial responsibility of a credit card. Besides, Apoorva already has a student loan to settle. Riya offers some advice from experience. While EMIs and loans can be daunting at first, you get used to the regular payments. Paying off more whenever you can help in the long run.
She also encourages Apoorva to buy a life insurance policy. If something were to happen to her, Riya and their retired parents would have to repay her loan. Apoorva had never thought of it that way. She was part of the family policy for health insurance and her new employer gave her one too.
There was still more work to be done. Apoorva had to start saving! Riya knew that Apoorva was a numbers person. So, she ran some quick calculations to show her why she shouldn’t procrastinate.
- Case 1: Rs. Save 2,000 every month for 15 years from now at 10%
- Case 2: Start saving after 5 years with Rs. 4,000 every month for 10 years at 10%.
- The difference: 2.7 Lakhs more if you start today!
The math made sense – the wonders of compounding! But where was she going to get a 10% return? Her bank was offering only 5% on fixed deposits. Riya introduced her to mutual funds. Riya had been doing a marathon SIP for 3 years now and was very happy with the progress.
At the end of their long chat, Apoorva realised that financial responsibility doesn’t mean she can’t treat herself. It just made her more aware of her financial decisions. She would always be able to set aside money for indulgences and she was starting her journey on a good note. Amongst other things, Apoorva had the best sister in the world!