personal finance

Spending priorities for new earners: How to take control of your finances

Gaurav is worried about the rising demands on his new income. He has just completed his postgraduation in management and has been working for the past six months. He lives with his parents and is yet to be married. He had thought that he would be able to save most of his salary, but finds himself paying a sizeable amount as EMIs for his education and car loans. He is also expected to bear several expenses for the household. He has been using his credit card, but worries about piling on debt. He is also afraid of bringing up the topic with his parents. How should he take control of his finances?

Gaurav should start trying to bring some balance to the way his income is being apportioned. Since a large part goes towards his loans, there is a limited amount available for other expenses. While he may be reluctant to let his parents know how much he earns and where he spends it, it is important for him to set their expectations realistically.

The critical component here is the loan. Any default in either of these would impact his credit score and affect his ability to take loans, say, for a house, in the future. It might be helpful to evaluate whether he needs a car so early on in his financial life. He may want to accept that the purchase was impulsive, sell the car and pay back the loan. A car is a depreciating asset and investing in it so early in life would affect other aspects of spending. Taking this step would also enable him to explain to his parents how he has taken harsh decisions about his money.

He can then bring up the education loan and fast-track its repayment, explaining to his parents that he would like to become debt-free in order to be able to spend better.

During the period that he will be prepaying his education loan, with savings from the car loan, he would have a limited amount of surplus to spend on other things. He should be able to tell his parents that his finances will be back on track once the loan is out of the way, and should fix a time frame for the same. He can request their understanding until this period is over.

After this, he should start contributing a fixed amount every month towards the household expenses. He should ensure that this is in keeping with the money he is saving on rent and other expenses because he is staying with his parents. If he manages to keep his spending limited during this period and demonstrates with his actions that he does not have too much to spend, he will be able to bring down their expectations from him and manage his finances in a better manner.Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.


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