Financial Planning for Salaried Employee: The Basics, Tips and Strategies

Financial Planning for Salaried Employee

Financial Planning for Salaried Employee

Everyone wants to have a financially secure future, but life is full of competing priorities – some planned and some unplanned. Most of our important life events are planned – things like buying a house, having children, paying for their education and weddings, and having enough money for a comfortable retirement. But when an unexpected event occurs, it can drain your finances, especially if you are salaried with a constant month-end financial crunch. In such a situation, a financial plan helps you stay on track and puts you back in control, ready to face whatever life throws at you.

If you are salaried and new to personal financial planning, this article is for you. Read on.

If you are salaried, it’s important that:

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What are the basic fundamentals of financial planning?

The basic fundamentals of financial planning include financial management principles that work in a good and bad economy and under any financial condition. Financial planning begins with goal setting, saving, and working toward growing your investments.

To ensure that your future is financially secure, you need to include the following in your financial plan: 

How to Create A Personal Financial Planning for Salaried Employee

Creating Personal Financial Planning for Salaried Employee
Financial planning for salaried employees is a powerful tool to make the most out of your hard-earned money. However, it needs a planned approach to managing personal finances as soon as you start earning. Here are a few steps to create a personal financial planning for salaried employee:
  1. Calculate Your Net Worth Your net worth forms the baseline of financial planning. To determine your net worth, here’s what you need to do:
    • Assess your income, your liabilities and other expenses.
    • Your Assets – Your Liabilities = Your Total Net Worth.
  2. Develop Your Financial Goals Determine your financial goals and break them down into short, medium, and long-term goals.
      • Short-term goals: They are set to achieve in the next five years. Example: Purchase a car.
      • Medium-term goals: They are set to achieve in the next 5 to 10 years. Example: Create an emergency fund.
      • Long-term goals: They are set to achieve in the next 10 years or more. Example: Retirement plans.Next, categorise your goals into these 3 categories:
        • Needs
        • Wants
        • Savings
    Goal assessment will help you in determining what your immediate needs are and what you can concentrate on later.
  3. Draw a Budget A budget creates a framework based on your goals and your net worth. It makes your cash flow go through the 50/30/20 thumb rule. According to the rule:
    • 50% of your income is to meet your day-to-day (essential) expenses. Examples: Food, rent, etc.
    • 30% of your income is for significant expenses that are not essential. Examples: Buy a phone, dining out, etc.
    • 20% of your income is dedicated to savings. Examples: Saving for emergency fund, retirement, or to pay off debt.
  4. Prioritise Savings The 50/30/20 rule is just a loose guideline, but you can choose to tweak this rule to make savings a priority so that you meet your goals faster. Consider putting aside money in the best saving schemes before you start making any non-essential purchases
  5. Plan Your Investments Once you begin saving, consider investing it for better returns. This will help you achieve your goals faster. When it comes to investments, you have a lot of investment alternatives. However, make sure that your investment portfolio is a mix of different asset classes and types, including both high risk and low-risk investments. This diversification will help reduce the risk of losing money due to market fluctuations.
  6. Save for Emergency Successful personal financial planning needs to have a plan to reserve funds for emergencies. According to financial experts, an emergency fund should ideally have 3 to 6 months of living expenses.
  7. Plan Your RetirementYour retirement plan should depend on two things: your age of retirement and your monthly expenses post-retirement.Financial experts recommend having a retirement fund of 20 times your annual income. However, keep in mind your present expenses and inflation when drawing your retirement plan.

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Invest in Insurance Coverage

Insurance protects you and your family in times of need. The two popular types of insurance most people invest in are:

  • Health insurance 
  • Term insurance

Clear Your Debts to Avoid Debt Trap

If you have taken a loan, make sure your financial plan includes a strategy to pay off the debt. According to financial experts, your loan burden shouldn’t be more than 50% of your total income. If the debt is overpowering, then you may find it difficult to make repayments, making it easier for you to get caught in a debt trap

  • Make sure that you increase your debt repayments in line with your increasing income. This helps you repay your debt sooner. 
  • Consider using the snowball method (clear off low-interest debt first and then move on to the next) or the avalanche method (pay off the high-interest debt first and then move on to the next) to pay off your debt strategically.

Get Started With Passive Income

Passive income is earning money with little or no effort. While passive income may not make you rich, it can be a profitable and reliable income stream you can have for the long haul. Passive income is important because it:

  • Helps you achieve financial freedom
  • Improves financial stability
  • Reduces stress and anxiety
  • Secures your financial future

Financially securing the future for yourself and your family is your right. Effective financial planning utilises your hard-earned money in the most efficient manner so that it helps create a financially secure future. The above financial planning strategies are extremely useful for a salaried employee to build an economically stable life.