<p>Mehak Aggarwal, a fresh MBA from IIM, is earning a package of Rs 20 lakhs per annum. After paying for her daily expenses and her education loan, she still has over Rs 50,000 a month as disposable income. She is not sure what to do with it. Should she buy the latest phone, tablet, shoe or dress? Or should she just save the way her mother is forcing her to?<br><br>Fresh MBAs from premier institutes are often plush with new found monetary freedom. From hefty joining bonuses to large disposable incomes, they are often not sure what to do with surplus funds. A lot of them spend it on the latest gadgets or have money lying in their savings bank accounts. As they are in the prime of their youth, saving for retirement or building a financial corpus often sounds an alien concept to them. However, spending and saving money smartly goes a long way in building an ever increasing financial corpus. The article looks at some of these guiding principles. While most people are aware of these principles, a majority of them fail to implement them.<br><br>Most people in their 30s and 40s often wish they had managed their finances differently in their 20s!<br><br>Most of your grandmother's money management techniques hold true even today!<br><br>While consumer spending has been incessantly lauded in print media as a key driver of economic growth, the benefits of saving as much as you can still hold true. The age old cliché of saving a fixed percentage of income every month makes immense financial sense. Compounding benefits kick in when savings start early. For fresh MBA graduates who are full of disposable income, a blanket rule of saving at least 50% of monthly income, no matter what, is a great starting point.<br><br>Needless to say, equity markets always return disproportionate returns over a period of time. It is a great idea to invest a percentage of your savings, ideally 100 minus your age, in equity markets. Over a period of time, equity markets often return in excess of 15% which is greater than most other asset classes. As real estate can end up giving disproportionate gains, some MBA graduates pool in initial capital and buy a plot in fast growing tier 2 / tier 3 cities.<br><br>Although retirement seems four decades away, it is never too late to start planning for it. While most people think they are in the prime of their youth and retirement is many decades away; early planning for retirement can reap huge rewards and financial stability later on. Provident Fund (PF) and Public Provident Fund (PPF), without any tax burden and assured returns, are excellent instruments to plan for retirement. A PPF guaranteed return of 8.7 per cent a year amounts to 12.5 per cent return on another asset class that is taxable. A lot of MBAs contribute an amount greater than the stipulated 12 per cent to their Provident Fund accounts to realise greater gains.<br><br>As with most things in life, it is most important to plan for key financial goals. Typically education, car, marriage and home in that order. A detailed extrapolation of future cash flows and requirements will automatically point to the minimum amount to be saved every month.<br><br>Other aspects to sound financial management involve keeping an emergency fund with 2-3 months' salary readily accessible. It is always a good idea to track your expenses daily and start cutting down on the flab. Although most employers provide insurance, it is advisable to get a life / medical insurance.<br><br>On a lighter note, some MBA graduates see their marriage as their soundest financial decision. An equal earning spouse is one of the greatest investments that can be made to securing your financial future. If your wife earns more than you, it is even better!<br><br>Pitfalls to sensible money management are many; most people end up making these mistakes anyway!<br><br>There are a million ways to spend money carelessly. While most people are aware of these pitfalls, most of them tend to fall prey to it.<br><br>Spending substantial income piling up too many fancy gadgets is quite useless. While an odd gadget here and there is necessary for entertainment; spending quarter of a lakh on every gadget upgrade might not be necessary. Self-control is the key in such cases although it is easier said than done. Ensuring a monthly investment plan where a planned lump sum is directly debited from your account is always advisable. Idle money lying in the bank account often leads to useless expenditure.<br><br>Using credit cards to fund purchase of such assets is even worse. The interest rates charged by credit cards are enormous; defaulting even by a day results in interest penalties and a negative impact on CIBIL score leading to complications later on while applying for a loan. Credit cards should be used to manage working capital for a month and not for borrowing money which cannot be paid back in the immediate period.<br><br>While not blowing up your disposable income or your yearly bonus is creditable, not doing anything lucrative with it is also not advisable. Keeping money in savings bank accounts at 4 per cent interest per annum is losing money over a period of time. It is natural to use yearly bonuses to pay back any outstanding loans; the earlier you pay, the more money you save!<br><br><strong>Conclusion</strong><br>Although money is not the be all and end all of life; it goes a long way in bringing security and material comfort. With simple smart tactics, young professionals can easily accumulate up to Rs. 1 crore by the time they turn 30. Having such a corpus serves as a fantastic back up in case someone wants to pursue his true calling in his early 30s. Or to take care of a rainy day.<br><br>Mehak decides to save 50 per cent every month as a habit. She postpones the Rado watch for some time. In a few years' time, the interest income on her investments can pay for the Rado watch!<br><br><strong>Did you know?</strong><br>1. Did you know that Warren Buffett purchased his first stock at the tender age of 11?<br>2. Did you know that Benjamin Graham, the father of value investing, pioneered many of the principles of financial investment which are followed even till today?<br>3. Did you know that Rs 1000 saved every month for a period of about 35 years would amount to nearly 30 lakhs at the end?<br>4. Did you know that employees can contribute in excess of their mandatory contribution to their Provident fund (PF) accounts?<br>5. Did you know that, as per a Motilal Oswal study, the sensex jumps 100 times every 30 years?<br><br><em>The author, Sandeep Das, is an MBA from IIM Bangalore, the author of Yours Sarcastically and a columnist</em></p>
