How to make the most of your first pay check

How to make the most of your first pay check


It is a proud moment when you get your first pay cheque. Transitioning from being financially dependent to independent creates a sense of pride and confidence. The feeling of attaining the ability to take the responsibilities of the future on your shoulders is what guides you on your growth path.

However, once the regular salary starts getting credited in the bank account, you can be careless about your expenses. If this habit is left early, it can set you up for better financial results.

Saving and investing should be your first priority when you start earning. Ideally, you should invest at least 20% of your take-home salary. The sooner you start, the better for you. Making informed investment decisions is something you should consider early in your career.

Here are five investments you can consider after receiving your first paycheck.

1) SIP in Equity Mutual Funds: Monthly Systematic Investment Plan (SIP) in Equity Mutual Funds is worth a look. Once the SIP is registered, a certain amount is deducted from your bank every month. It is used to buy units in a mutual fund of your choice. Equity SIP is the most convenient way to build wealth over the long term by investing in stocks through mutual funds. While returns are not guaranteed here, we have observed that the equity markets have generated an average annual return of around 12% over the past 20 years.

2) Open PPF Account: Opening a Public Provident Fund (PPF) account with banks or post offices is a good way to invest in loan assets. PPF Return 7.1% Interest Guarantee. It has a lock-in of 15 years, though partial withdrawals are allowed. PPF helps an investor to build long-term wealth in a safe manner. It also gives tax deduction to the investor under section 80C. An individual can invest a maximum of Rs 1.5 lakh and a minimum of Rs 500 per year.

3) Get a Health Insurance Plan: It is advisable to take a health insurance cover that protects you from hospitalization and unexpected health crises that can drain your finances. The premium paid for health insurance will ultimately prove to be a good decision as you will be financially secure in case of a medical emergency. More importantly, your health insurance premiums will be minimal when you are young.

4) Divert monthly savings into bank deposits or liquid funds: Along with investing monthly, you should also save for emergencies. You can deposit some amount every month in bank deposits or liquid mutual funds. At the end of every month, savings can also be directed at these options instead of leaving that money idle in your bank account. A liquid mutual fund invests in debt and money market instruments for the short term. Generally, money kept in liquid funds gives better returns than savings accounts. This way, not only is your savings safe, but you also earn comparatively better interest. You can withdraw the amount as per your requirement while the rest of the investment will remain.

5) Gold ETFs: You can consider investing around 5-10% of your monthly investment in Gold Exchange Traded Funds. Instead of owning physical gold, investing in digital gold through Gold ETFs is something one should consider. Investing in gold related instruments gives you the benefit of hedge against inflation; It also helps in diversification.

While deciding on different investment avenues, a young investor may prefer asset allocation with a major inclination towards equity-oriented investment instruments. While there is no rule, it is a good investment approach to ensure that your equity investments comprise 60-70% of your total portfolio.

Debt asset can take care of 20-25%, while the rest can be gold. Equity investments generally outperform inflation by a wide margin over the long term. Since a young investor at the age of 20 has a working life of more than 30 years, he should focus more on equity investments. High equity exposure for more than two decades will result in substantial wealth creation and enable you to become financially independent.

(The author is the CEO of


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