First 5 yrs of your earning life – Does it matter ?

POSTED BY manish ON July 23, 2012 COMMENTS (89)

A lot of people complain that they do not have much wealth in their life despite earning from many years. This brings an important points in question. What did they do in the first 5 yrs of their earning life? Its very clear that the first 5 yrs of your earning life leaves a very big impact on your future financial life. Your financial life shapes a lot due to the first 5 yrs of your financial life.

There are 3 possibilities

  • A person has saved & invested maximum of his earned money in first 5 yrs
  • A person has spent a lot of his earnings in the first 5 yrs.
  • A person has kept balance between his spending and investments/saving in first 5 yrs .

Are you one of those who started young with a nice paying job, but did not focus on your first 5 yrs or are not focusing on it right now. You feel future is so promising and your abilities/expertise are so great that you don’t need to worry so much. It happens because at times people are seriously unaware and ignorant that life turns out very differently then they think. There are many events which demands money and attention at any cost. These are some times unplanned or just popup in life if you had not planned for it before – like Job loss, Marriage, Sudden health related expenses etc etc. The moment these events happen or come near, then you realise – “Oh my god – I never planned for it or I underestimated how much money I will need”.

In my book Jagoinvestor there is a chapter where I explain how your first 5 yrs investments, out of a 30 yrs period makes the 50% final corpus and rest another 25 yrs makes another 50% corpus. That means the initial 16% tenure makes 50% corpus and later 84% tenure builds rest 50% corpus – (read sample pages)

So if you are 5 yrs late in saving and investing for your retirement – You will end up with 50% less in your retirement – This might not sound too scary, but it is . This could means looking for a part time job compared to a enjoyable retirement without much tension. There is a big difference what 50% less corpus can do! . Its like earning Rs 30,000 per month from next month compared to Rs 60,000 right now , imagine your life from next month.

Early years of your earning life

 Spending Maximum vs Investing Maximum

Lets talk about the first two possibilities mentioned above – “Spending Maximum” vs “Investing Maximum” . Lets say there are two guys who earn 75,000 per month. Both are unmarried (we all are, at the time of getting a job and next few years , possibly 4-5 yrs) and have similar conditions.

The first guy operates from the mindset of  “Life happens now and this is the time to spend, who knows about future , however the other guy operates from the mindset of “Life is uncertain, I can save today , so that I can protect my future now”. Both are ideologies and way you think, but it can have drastic impact on your life. Because your financial life operates like a chain reaction. What you do in the first year, has some impact on 2nd year, what you do in 2nd year affects your 3rd year and so on, obviously assuming that your pay rise is natural and not shoots from 3 lacs per annum to 13 lacs per annum in short term.

If you are struggling to make a down-payment for your dream house TODAY, you can clearly see your early 5 yrs have been and identify that point where you could have been more responsible, where you could have given your financial life a new direction and shape. If you are not able to fulfil your big goals coming soon, its a clear indication that you have done something wrong in first 5-6 yrs of your financial life or early years. In the same way if you are at peace today, you can clearly identify what right things you did in the start of your career .

Real Life Experience of Saving Early in Life

One of the readers Ashish shares his experience about how he saved early in life and how his life is right now.

After completing my study in 2004, I started my career in IT industry. Three thing was clearly injected in my mind by my father :-

1) Always maintain the cash for emergency. As in emergency cash is primary and relation is secondary.
2) Never go for loan. If you need money, first check with your relative and don’t mind paying interest on the money you owe from them. It will always be cheaper then bank. If no help available, consider the thing is not worth to invest.

3) Respect your money.

Though I am not obedient son of my father but “Money matters”. So I started maintaining one excel sheet about my expanse. I must say with my experience that daily expanse is not cost you more if you spend smartly. So at the start of my career, I compromised on my comfort level. Instead of staying in separate house, I searched for shared accommodation or PG which really helped in saving a lot. Instead of buying bike, I calculated my per-day travel expanse and tried my best to minimize it by sometime taking lift with office colleague :)

Travel and Stay is the biggest expanse as per my experience and this clicked me an idea of buying a house. I was not capable enough to buy the house, so instead of taking loan from bank I knocked my father’s door and able to convince him on 4% interest rate(following papa’s advice). No need to say that I paid 4% or not, but he is happy to see the value of that flat on today’s rate. But I was not able to stay in that house for more than a year as I changed my job very frequently(at least once or twice in a year) and happily rented so far.

I travelled from Gurgaon–hydbd–Noida–Pune–Mumbai and then finally got chance for onsite UK in 2008. I applied the same logic and maintained at least 1 lac saving per month. And the story continued since then on saving more and spending less. With this, I am able to manage to renovate my own house for my parents (which they call now as my house officially :) )

Then I married in 2009 on my own expanse and came back to India last year when we both thought that there is no place better than India on this earth. And it get proved as well, when my wife also got the job in same company and same building :) . Before coming to india, I showed no interest in paper form investment except ppf and property investment. But after becoming the member of JagoInvestor and reading some well written and advices article, I did another smart investment. 60 + 40 lac term insurance for me an my wife from two different company. One personal accident insurance of 40 lac from LnT for myself.

SIP of 8k per month in different MFs , which I considered after reading one of the article on jagoinvestor where the comparison was made with child plan and other investments and purchased one villa plot in Bangalore. So far no Loan :) . So far the story is this but adding new pages everyday… I know there are more happy family out there but just want to say that “Saving does help not hurt”.

I would say your life has constant amount of comfort in your financial life , its your choice when you want to have it , in the start of later years or keep a balance in start and end. The best approach I feel is to 1st year your earning life to yourself , enjoy , spend and do what you always wanted. After first year just get damn serious ! .. What do you think ?

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89 replies on this article “First 5 yrs of your earning life – Does it matter ?”

  1. Vijay says:

    Hi Manish Chauhan
    I have an PPF account (from past 5 years) and I am contributing every year some 30k.
    and also LIC myna me and wife name with sum of 50k.
    New member joined my family (daughter).
    Is starting Sukanya Samriddhi account on her name is good or same can contribute in PPF .
    please give me your valuable advice

    1. You can continue with PPF itself .

  2. Kumaraditya Sarkar says:

    Hello Manish Ji,

    I’m an avid reader of your blog since long. I’ll turn 26 this October, but I don’t have any proper job yet. I’m doing Ph D in English, and hope investing in academic degrees now will lead to a steady job within 2 years like teaching in a college.

    I earn some paltry sums though. As a part-time teacher in a college, plus a part-time blogger, I make roughly 10-12 thousand per month, which I’ve been earning for about 2 and a half years now. I don’t see the need of a term plan right now, since I have no dependents and live with my parents. I’ll go for it when I marry. Apart from that, what I could save so far is:

    1. Roughly 2.5 lakhs in FDs of various tenures. 1.5 of it is for 10 yrs.
    2. Opened a PPF this year, contributing 2500/month since April.
    3. 500/month SIP in SBI Emerging Business (G)
    4. Though not SIPs, I manually invest 1500-2500 per month in various MF (UTI Opportunities, SBI Bluechip, SBI Pharma – all Growth, Direct)
    5. Opened a Demat a few days back with 10k, just trying to learn. Invested in some large caps. Following Moneycontrol and Sharekhan stock tips.
    6. 1000/m RD for 3 yrs + Flexible RD (base amt 500 rs) where I put away 500-5000 per month (avg 1000) depending on availability of funds. I put away extra earnings like cash gifts, seminar TA etc there.

    I am seriously considering:

    1. Getting a low-stress low-pay job while I finish my Ph D and go for my dream jobs in academics (I’m trying at the banking sector. The corporate world is not my stuff. Apart from money, I need time enough to read, write, blog, socialize, think, travel and do lot other stuff).
    2. Allocating 1000/m in commodity (pref. gold) from next Jan. SBI Gold ETF seems a good option.
    3. Increasing PPF contribution to 5000/m from next FY. I see it as my retirement tool.
    4. Cutting down my monthly expenses which is now about 1500-2000 including internet, travel, garments, books & so on.
    5. Start a LIC term plan for 20 years when I am 30, with 1 crore sum assured. Beyond that, I don’t think I will need a cover.

    NB – Both my parents are university professors. My father has 3 years of service left, mother has 7. My brother is mentally handicapped so I’ve to take his responsibility in future. Presently my parents’ savings are around 50 lakhs, a house, a car with garage. My mother has no siblings and will inherit her paternal house.

    Am I going in the right direction? I would so much love to have your response.

    Regards,
    Kumar.

    1. I have two comments to make

      1. You have done good till now overall , your situation is better than many others.
      2. You are not focused overall . You are doing too many things.

      All I would say is STOP doing too many things and investing money in many things. Rather have only 2 things like Recurring deposit and Mutual funds, thats all . or PPF and Mutual funds. Because when you do too many things , it gets cluttered and the value does not come . Just putting money in 5 things is not diversification.

      So see how much surplus each month you have (example 6k) , and then divide it into 2 baskets and assign some goal to it so that you can see it growing and making you reach your goal.

      1. Kumaraditya Sarkar says:

        Thank you very much for your quick response Manish Ji. Yes, I also felt I was over-diversifying. So as you said, I will focus on PPF as debt and MF as equity. Closing existing RDs will attract penalties so let them continue, but I won’t make a new one now. I opened demat account to invest in SBI GETS for hedging purpose.

        Currently, my MF portfolio has UTI Opportunities (G), SBI Blue Chip (G), SBI Emerging Business (G), SBI Pharma (G) that is 2 large caps, 1 small-mid cap, 1 sectoral. Is that good? Or should I get rid of any?

        1. Here are my suggestions

          1. Let PPF run , put Rs 500 per year
          2. Keep RD going, and keep investing, because this is LIQUID money, you can take it if you want. Blocking a lot of money in PPF will not be that good as its locked for very long term
          3. On mutual funds side, again just have 2 ! . So many are not needed . What matters is your allocation . Do read our books – https://www.jagoinvestor.com/book

          1. Kumaraditya Sarkar says:

            Thank you!

  3. Nitin says:

    Please suggest, My salary is 20,000. To start with SIP, which plan & How much to be invested?
    Thanks in advance…….,

    1. Go for a SIP in HDFC prudence to start with 5,000 per month

  4. Niranjan says:

    Manish,

    Nice article but i partially agree because the fact of first 5yrs in you earning have impact is true but these 5yrs earnings also be crucial for many other occasions in in indian youngster’s life where he/she be dependent on parents till 21 and gets married at 28 or before on average.
    Just to share my own case i started working in MNC @21 years for <8K/month salary with no idea of what is a financial planning was about.it took me 4yrs just to cover myself and my dependent parents needs and sister marriage into a safezone. and another 1yrs to make 1 yr future planning/securing. now am 6.5 yrs experienced guy fortunately got abroad position so secured life and a bit of investments and planning of so called DREAM home,retirement,marriage,entrepreneurial explorations etc in progress .. in my feeling for a middle class youngsters in india,"value for money/earning" lessons should start way before getting into a job may be at 16yrs and govt should provide opportunities for youngsters to learn.so that your calculation will become first 10yrs of earnings in life than first 5yrs.. just my thought 🙂

    1. I agree with you .. the first priority is obviously your life goals and situations which demands money. This article was mainly aimed for those , who can save a lot , but waste it on useless things not providing value in their life thinking – “I will do a lot in future and get trapped in the race”

  5. Bala says:

    Very good article dude…Its a wakeup call for guys like me to invest money in a proper way.Thanks

    1. Good to hear that Bala !

  6. Sukhvinder Sidhu says:

    Thanks Manish! Very good article for guiding the younger people on the importance of first five earning years.

    In our times there was no such guidance. Although I also saved and did not spend undue, but the earlier investments were mainly to save taxes. But such articles indeed guide today’s youth very well. I will recommend to my brother and his colleagues to read the articles on this blog.

    1. Thanks sukhvinder for your appreciation !

  7. Sanghmitra says:

    Hi!

    Please note that apart from campus-placed employees, many of the freshers struggle to survive in their first 2-3 years. The hop for a right career does not guarantee a regular income. These kind of salaried people are bound to think of investment at later stages.

    1. Sanghmitra

      The article does not say each one of us out of our situation has to save in first 5 yrs, its just a general observation , it can apply on some and might not on others .

  8. Anand Sarin says:

    I am 25 years of age. I am working in a PSU for last 6 months and I get about Rs. 35000 per month in hand. I wanted to know what are the best financial planning options for me??

    1. Anand

      What exactly is your requirement ?

      1. Anand Sarin says:

        I am very new to the world of financial planning. So i want to know how much i can save with this amount of salary and where.

        1. Which amount of salary ?

          1. Anand Sarin says:

            Rs. 35000 per month. I wanted to know what will be the best possible options for investment for me. I am 25 years of age and unmarried. Thinking of marriage after 3 years. Started working 6 months ago in a Public Sector Undertaking company.

            1. I would suggest start with a Recurring deposit first and also invest in balanced mutual funds too ! .

  9. bisprad says:

    The real life example cited in the article – Mr Ashish – does he even live ? From his description and the note of pride in his writing, I have serious doubts if he has any life apart from saving up
    Do you really thing his life is worth emulating ? Filching rides from office colleagues daily – if he is proud about that, well I dont know what to say

    1. Muthu Krishnan V says:

      would agree with bisprad, staying in shared PG is okay, but saving money by riding on somebody else’s back is NO good unless you share the expenses. I have seen similar people unfortunately.

      1. Muthu/Bisprad

        You can always label something as “not acceptable” and “I dont like this” , thats one thing , but see the message behind . Some one did whatever he wanted , rather than commenting on that and sharing if you liked it or not , you should discuss what you are doing in that area . So please share how was your first 5 yrs of your career in terms of saving , Has it impacted your life or not . Lets not judge others actions , Dont you guys agree on this ?

        1. Muthu Krishnan V says:

          I would say means are as important as the end.

          My personal situation was a lot different compared to others and I had to make innumerable sacrifices in the first five years. but now i am proud to say that I have no loans, have one flat and one independent house and have a decent amount of savings equal to two times my CTC.

          only mantra is live below ones means and savings will happen automatically.

  10. Saikat says:

    Hi Manish,
    Chanced upon this treasure trove today only.
    Can’t thank you enough for this commendable job you are doing by educating mass.
    Now coming back to my financial life, I need some honest suggestion from you.
    I am 24 and my earnings/expenditure leaves me with 15k per month.
    I have 2 goals:
    1. Rs 4 lacs after 3 years for the downpayment of a flat( I am thinking of starting a RD of 10,000 from this month for this)
    2. Need to invest 70,000 each year for tax savings (currently have a RD of 5,000 which matures at the end of f year and I invest that in PPF).

    I also want to start investing in equity through SIP but my short term goals not permitting to do so.
    Please suggest if you feel there is some alternative way of realizing my short term goals as well as start investing in equity.
    TIA.

    1. Saikat

      With 15k per month, you can do both 1 and 2

      1. It will require 1.2 lacs per year and will get your 4 lacs in 3 yrs
      2. You will be left with around 60k per year , which you can invest in PPF , why are you making RD and investing in PPF at the end of the year . You should invest it on montly basis in PPF /

  11. suresh says:

    Hello Manish, I read the book-JagoInvestor. I am not clear with the Ajay and Vijay Example cited in the book. Vijay invests 1000 per month for 30 years @ 12% per annum and end up with 36 lacks. Ajay invests 2000 per month for 10 years @ 12%per annum and leave the amount for remaining 20 years @ 12% per annum and end up with 45 lacks. This is not possible. Please explain with the Formula of Recurring Deposit/Fixed Deposit on how you arrived at such amounts?

    1. Suresh

      Yes that was the mistake in the first print actually .. The numbers are a little different one , the corrections are already done in the second print , there is one more mistake in the numbers somewhere, but dont let it stop you from getting the main message of the chapter . Thanks for pointing it out !

  12. Shankar says:

    Thanks a lot for the wake up article… I would like to share my personal experience. I have been working for last 7 years but I realised off late that my savings ratio is very poor… I got married last year and I became serious from then as my wife is not working and I feel the pinch of my mistake every day now … though I had saved for my marriage I realised that my savings was towards and “expense” and not an “asset” … i did some math and found out that my current net savings which could be used for buying any asset is just 20% of what I had earned in last 7 years …. currently i need to buy a house as my parents are also staying with me but i am unable to afford the down payment ….my advice to all the freshers is that please decide on your savings rate when you start working(percentage of your take home salary)…. and then stick to that savings every month … ensure meet your savings target as soon as the salary comes to your bank ….. and plan your spending in the remaining money ….also ensure that your savings is used for an asset and not for an expense (buying car is an expense and not an asset ) … As Robert Kiyosaki says – “Pay yourself first” ……

    1. Thanks for sharing your experience .. you should now make an aggressive plan for the saving in future , what are you doing for it now ?

      1. Shankar says:

        Hi Manish
        I am allocating 30% of my salary every month towards savings every month – SIPs in Gold ETF and Debt Mutual Fund. I have also made investment in the begining of financial year in ELSS to save tax under Sec. 80 C. I have decided to stick to this my savings target till I accumulate enough money towards down payment of house.

        1. Good to hear that .. dedicated savings can only increase wealth and get you closer to your goals

  13. Deepa says:

    Hi Manish,

    Thanks for a thought provoking article, specially for the youngsters who are about to start their career.
    This is an excellent guidance for them on how to start a healthy financial life. I too missed to save a good amount in first 5 years of my career due to many factors viz. ignorance, not getting guidance for right financial instruments etc..

    I shall recomment this article to all freshers who are gonna start their career as well as their financial life..
    Thanks
    Deepa

    1. Yea please do recommend it to more and more people !

  14. Manish..Many of the people traps to situation and many of them do not go to right correct opportunity to prove themselves..In this competitive world talent and result makers lead the race.Financially many of them are weak which this also may be the reason to sort talent guys..

    1. this article is for those who can still do somethign , but never do it because of their carelessness and attitude !

  15. Nitin sharma says:

    Hi Manish,

    Very nicely done article. Simple yet everybody can relate to it.

    I didn’t exactly splurge but didn’t have any set plan for savings, so I am not sure where that money exactly went. My salary now may have increased many fold but I think if during first 5 yrs if I had a plan in place say some SIP’s, portion to PPF ,bought house early on as it was cheap then (looking back today)etc, I would have been much better.

    But anyhow I am 33 right now and have time to still catch on as much I can.
    Thanks
    Nitin

    1. Hmm.. yea you still have time, but the earliar years are really golden years !

  16. Vaibhav says:

    Great article Manish…….

    Let me share my experience…..I am completing 5 yrs. of my earning life after 6 days…:)

    First and important thing, I have saved and invested good amount.

    Bad thing is I was not aware about where, when and how should I invest, in early 3 – 4 yrs. of my career. Hence all the 5 yrs. I had few lacs in my saving a/c.
    Also I was in LIC trap and have 2 traditional policies and 2 ULIPs. And one more I had too many debt investments for Tax saving purpose.

    Good thing is, I have taken a flat recently(with help of Loan and savings in a ratio 60:40), have a policies worth current Surrender value 1.5 L, other tax saving debt instruments around 2L.

    Now I am correcting my mistakes, surrender LIC, take pure term plan and invest into equities and debt in apropriate proportion.

    1. Good to hear your experience !

  17. Prakash Patel says:

    As per my opinion, everyone should have a very good saving plan in his initial life. And i assure you, your life become very happy, joyable & tention free, and ultimately you live longer….

    1. Thanks for your suggestions ..

  18. Krupal Patel says:

    Hi Manish,

    I earn 45k per month.
    I am unmarried.
    I spend 20k as my monthly expense in bangalore.
    I spend 40k PA in LIC.
    I have 15K which i invest in Share market.
    I do have 5k with me which is not used in anyway.
    Q1: What steps should i be doing to make an aggresive portfolio?
    Q2: Where should i put thr 5k?

    Thank & Regards,
    Krupal Patel

    1. You should be investing in Mid cap or large cap equity funds for now , stop your LIC and stop market trading also .

  19. ASHISH says:

    Sure and thanks for giving me the space in your blog to write something.
    After completing my study in 2004, I started my career in IT industry. Three thing was clearly injected in my mind by my father :-
    1) Always maintain the cash for emergency. As in emergency cash is primary and relation is secondary.
    2) Never go for loan. If you need money, first check with your relative and don’t mind paying interest on the money you owe from them. It will always be cheaper then bank. If no help available, consider the thing is not worth to invest.
    3) Respect your money.

    Though I am not obedient son of my father but “Money matters”. So I started maintaining one excel sheet about my expanse. I must say with my experience that daily expanse is not cost you more if you spend smartly. So at the start of my career, I compromised on my comfort level. Instead of staying in separate house, I searched for shared accommodation or PG which really helped in saving a lot. Instead of buying bike, I calculated my per-day travel expanse and tried my best to minimize it by sometime taking lift with office colleague 🙂
    Travel and Stay is the biggest expanse as per my experience and this clicked me an idea of buying a house. I was not capable enough to buy the house, so instead of taking loan from bank I knocked my father’s door and able to convince him on 4% interest rate(following papa’s advice). No need to say that I paid 4% or not, but he is happy to see the value of that flat on today’s rate.
    But I was not able to stay in that house for more than a year as I changed my job very frequently(at least once or twice in a year) and happily rented so far. I travelled from Gurgaon–hydbd–Noida–Pune–Mumbai
    and then finally got chance for onsite UK in 2008. I applied the same logic and maintained at least 1 lac saving per month. And the story continued since then on saving more and spending less. With this, I am able to manage to renovate my own house for my parents (which they call now as my house officially 🙂 )
    Then I married in 2009 on my own expanse and came back to India last year when we both thought that there is no place better than India on this earth. And it get proved as well, when my wife also got the job in same company and same building 🙂
    Before coming to india, I showed no interest in paper form investment except ppf and property investment. But after becoming the member of JagoInvestor and reading some well written and advices article, I did another smart investment.
    60 + 40 lac term insurance for me an my wife from two different company (as mentioned in one of the blog here).
    One personal accident insurance of 40 lac from LnT for myself.
    SIP of 8k per month in different MFs , which I considered after reading one of the article on jagoinvestor where the comparison was made with child plan and other investments
    and purchased one villa plot in Bangalore. So far no Loan 🙂
    So far the story is this but adding new pages everyday…
    I know there are more happy family out there but just want to say that “Saving does help not hurt”.

    1. Thanks for your experience sharing , it really helps other to understand how early saving can help !

      1. sayan says:

        @Manish Chauhan- Ashish said that he was inspired to start investing in MFs thru SIP after reading one of the article in jagoinvestor… which article is he talking about?

  20. ASHISH says:

    Very well written article and remind me of my story to feel proud of myself.
    In my 7 yrs of career, I have two house and well settled and protected family. Few more investments are there which include plot, ppf, SIPs. To be honest, onsite tour really helps when you are bachelor in all way 🙂
    Just to prove that point mentioned by Manish actually works.

    When you have money, you have two option :-
    Spend smartly OR just spend.

    1. Great 🙂 .. looks like I should include your experience in the article itself 🙂 . Would you mind given me a 2 para experience on this topic from your real life ?

  21. kaushik says:

    I think a person needs to strike a balance between securing future and having FUN. TOO much of everythig is BAD. You should not be spending so much so that after 15 year you will say what an idiot i was….why did not i save…..also it is equally important that you should not be saying to yourself ….i wish i could spend the night in a pub, or could go for a rafting…….What you can do at the age range 21-30 obviously it is definitly not possible to do the same at 45-50. Once this age is gone… its gone forever. Personally I tried to have a balance. I spent money in abundance behind travelling to places… eating good food at expansive restaurants…..since I love doing those…..also starting some small SIP. I personally do not mind having 2 crore less in my retirement fund since the kind of experiance I gatherd by travelling to places is as precious and is a treasure for me for rest of my life. The kind of satisfaction it gave me is unparalleled. Now that I have a nice family I am single minededly focusing on asset creation (learing about investment etc….from blogs like this).

  22. s.raman says:

    For a change I was one who saved 30% of earnIngs In the fIrst year of emploent Itself.In fact a lIttle even out of stIpend earlier as engg grad apprentIce.I have reaped the benefIts of compoumdIng. But Mfs have dItched me .

  23. Abhinav Gulechha says:

    Hi Manish

    Very well said. In my personal experience, I had been an avid saver when I started my career in 2004. When I bought my flat in 2008 and got married in 2009, whatever little I had saved came to much needed use and thankfully, I did not need to run out to my friends and relatives for funding these goals. Even after these savings, I had to take a small loan of Rs. 50K, But I repaid it quickly.

    I think an analogy can be drawn to ODI cricket. Its the first 10-15 overs that matters, especially if you are chasing a big score. If you start with a run rate of say 6 an over, and it crosses 8 by the end of 15 overs, its very difficult from thereon to win the match:)

    thanks for the post.

    1. a k aggarwal says:

      i am a retired man having everything in life which an average person should have.spending and savings has to be balanced right from the begining of service.i donot know the theory behind govt. rule of deducting gpf from the salary only after one year of service.the balancing act is quite difficult if you have more responsibilities at home.your other family members also play a vital role in it.

    2. ODI cricket analogy is really a good one , I had done a post of that some time back – https://www.jagoinvestor.com/2011/04/personal-finance-cricket.html

  24. Naresh says:

    Point taken..!!

    You missed key points of consideration.

    1. As you said initial 5 yrs a person is unmarried; hence, he need to spend a hefty bill for marriage expense (viz. gold, parties, other marriage expenses) which runs into lacs of rupees for Indian wedding.

    2. Post marriage expenses – Honeymoon, considering a decent job, your parnter would expect a person to spend a holiday at foreign location. Involves lots of money.

    3. After so many expenses the so called 5 yrs goes into short term loans or huge credit card bills and tend to spend the savings of initial period in these expenses.

    So then comes financial planning and logical savings..!! So its next to unlikely that someone saves a big what mathematical calculations shows.

    The real savings starts after 30 or 5 yrs of job. No doubt you may not save as per the workings; but, few things are to be done.

    1. Naresh

      Social obligations is one thing which really crushed your finances , If you want to have everything in lavish ways then obviously no amount of money can help you .Whatever you have mentioned makes sense in a way, but the intention of the article was just to remind that early years savings are really important, you can use them for marriage and honeymoon and whatever, but the thing is a lot of people even after 5 yrs of good pay life , do not have a penny at the end and end up taking loans for everything . I was mainly pointing to that.

      Manish

  25. Harsh says:

    Indeed a very good point. I too missed it during first 5 years of my life 😛

    But savings is a calculated decision, it needs maturity which we get after settling BIG questions of life 🙂 And remember not everything is quantitative in life 🙂

    I know this is not the right forum to discuss philosophy amidst finances, but your first five years of job can be compared to first five years of your life. Which are devouted to learning and understanding the world. Learn new things, invest in yourself, travel as much as you can. I would advise to let yourself free, splurge as much as you can. This is the only part of your life where you can live without responsibilty with your own income. It’s an altogether different world during that time, and will leave a life long impact on how do you perceive the world.

    But again you may have a different understanding on life and its your decision 🙂

    Thanks
    Harsh

    1. Harsh

      Actually i support the way you think , as far as you do not remember your first 5 yrs of earning life and say to yourself – ” I was so idiot to live like that”, then you are on right path . Do whatever you want, spend money in learning things , if you invest in your self, I think thats the best thing . The article was just pointing to those who spend it for unwanted stuff which is neither required nor they plan for it considering future and regarding enjoyment, thats the reason i said you can use first year , lets give two to you 😉

  26. Anindya says:

    Hi,
    This post came at a time when I just crossed 5 yrs in IT :)(around 10 days back).
    It’s really easy to get distracted ..in my first 2-2.5 years I saved nothing 🙂 Party drinking and spending…just around that time I was relentlessly pursued by an Agent to take an Endowment plan..
    Just before succumbing to his pressure I decided to google it 🙂 just for time pass..
    To be honest I was stunned to see so many hits!!! I totally got hooked to the financial jargons!! and now I daily read blogs and all ..
    I have been saving pretty well since then and have also been able build a small corpus :)..
    Thanks for all your effort to enlighten the naive investors!!
    Regards,
    Andy

    1. Good to know you were enlightened when you really wanted it ! .. Best of luck

  27. dr Nilesh kate says:

    Hi,
    Such a nice article,
    From my point of view this is not a article for guidance these are experience of all friends together,i joined jago a couple of months back and i am still reading old articles,
    Many many thanks to all comment writters, coz i need not to write any thing new all are telling my same story,
    Thanks ………
    Dont worry be rich…………………………………..

  28. Suhas says:

    Hi Manish,

    That’s the reason why Einstein called the law of compounding as eight wonder.

    I myself had been bit careless in initial years.
    The initial years are the same years when you got to do everything.Want that mobile/bike/laptop/car or just buying all your dreams…..so you tend to spend.

    I agree with you about the first year of spending.But how many are aware or thought about DOING it by the next year? Most of our population doesn’t even know
    about financial planing and wealth creation even today.
    The first thing comes to the new comers mind is TAX and tax savings plans.Even if they don’t want they will have a uncle or relative who will (MIS) sell it to them.
    Most of the investments for them are in LIC (was true for me too) and may be ULIPs, Child Plan and pension plans.Offcourse something is better then nothing so……OK (though not)

    The best thing is to have channelise the money outflow to specific things so you don’t have much amount left for spending.
    I think a person should try to buy a property so he gets the responsibility as well as a sense of ownership (and motivation to earn more looking at the sky touching prices:))
    In the initial years you may not be very serious or even aware of investments/wealth creation(thanks to our educational system)
    so this EMI thing keeps a tab on your expense outflow.

    Also maintaining budget and expense is very much necessity which is missing most of the time in the initial years of earning.
    Its only when you get some responsibility (Spouse/house/kid..etc) you wake up with all the goals……

    I appreciate your effort of lighting the lamp in each of your readers and spreading knowledge….Only through financial literacy all these can happen.

    1. Thanks Suhas

      Agree with you that new generation really dont care about future and dont plan for it , but thats were we are coming into picture and telling them how to behave !

  29. jenie says:

    absolutely…….enjoy the life in 1st year and then start saving………

  30. Sougato Pal says:

    Hi manish
    I have finished almost 2.5 years of my career.The only mistake I did was to take a LIC endowment policy which I dropped off after paying for first year.Thanks to you. As you have written I also believe that first five years of you career are the most crucial for any person.Not only one need to invest financially but also to his career growth.The amount of time and effort you invest in first five year will determine rest of you life, finances and work profile.

    1. Good to hear that .. Keep investing

  31. Sharad says:

    Hi,

    It is an excellent point and very true as well. However, following it to the T is a different ball game all together.
    After 16-18 years of studying and slogging one lands a job. There is a dramatic change – i used to get a pocket money of 1500-2000 bucks a month(during 1996-2000) and then suddenly, as soon as i got campus placed, my pocket money i.e. salary went up to 13000/-(a six fold increase).
    Guess what did i do?? 😀 – Drink, Party, Shopping etc etc

    And i believe i was not wrong – i had ‘earned’ the right to splurge. And i guess it was correct to an extent, atleast for the first one year. But yeah, second year onwards i should have started saving and investing. My dad kept telling me to start a PPF but that was too ‘old-fashioned’ for me and i did not pay heed.

    In between, i went to US and saved around 10L but then again did not invest(just kept those in my savings account). After a couple of years, i could not even figure out where all that money go.

    Finally, in 2008 i became a dad and that is when it struck me ..that i would have to plan for my baby, which is my real responsibility!!
    I had a cushy job, decent cash flow but i had not planned on any future goals and my investments were zero.
    Luckily i chanced upon JagoInvestor and it led me to do the following changes –
    1. Started investing in Mutual funds
    2. Started PPF account
    3. Bought a term insurance plan.
    4. Planning on getting a personal health plan.
    5. Thinking of closing a ULIP which was mis-sold to me
    6. Planning to dispose off a flat that i had bought “just because 5 of my friends were buying” (Yes, i was THAT dumb) as i figured out my EMI cash flow vs Rent inflow + tax saving + appreciation, doesn’t add up.

    Anyway, as they say its never too late and i am happy that i have been investing since 2009. But its too tough to convince anyone to invest early, i guess people learn it themselves as they mature and their personal/professional conditions change.
    99% of people i know start saving/investing seriously only once they become father/mother 🙂

    1. Sharad

      Yes .. you have the right to splurge and you should to make sure you get that “great” feeling. We all do not get a lot of it while studying and before the job , so we always want to spend it like anything, so its totally right and ok to do it , but as i said and you agreed , how much will you do it ? 1 yr is good enough 🙂 . After that get serious

      GOod to hear of your many actions which you took from jagoinvestor learning !

  32. Saket Kumar says:

    Good Article Manish. I have completed around 2 yrs of my job life but having very few investment. Since most of my savings goes to Education loan. But I will keep these thoughts in mind after completing my loan repayment.

    1. Yes .. even education loan is a valid outflow . Just try to see if you can start to save a little bit so that you develop the habit!

  33. TS Ashok says:

    Most of the people are wake up only after 10 years of their fiancial life(especially after marriage..)..Am I right?

    1. Yes, thats how it happens in reality, but then its a web where people get tangled for next 30 yrs ! , if they take proper care in first 10 yrs, the next 30 years can be much more easy

  34. Shekhar says:

    Dear Manish,

    fully agreed.
    very helful article,
    I was also in the same situation in my first 1.8 years, but after that I started to investing in LIC, but again thought that have not so much & enough, started investing more form starting of 4th finacial year, fixed amonut invest for using farming land for five years, getting profits from last three years, after that i will get back same amount after this benifits of five years. also now investing arround 1.0 lacs. per year through LIC which is helpfull for tax saving also.
    Rececntly, I brought one Flat in best location in pune, & investing now yearly, 2.0lacs. even I have not much more earnings as compare these all investments.
    My next plan after two years is to spending money to buy a car !

    What do you think about my planning & all ?

    1. Sahil says:

      Hi Shekhar,

      Investing in LIC is a fair way of investing but not a very good way of investing.
      With the premium you mentioned (1 lakh), it seems you have an endowment policy. Please go through Manish’s article :-

      https://www.jagoinvestor.com/2008/10/why-endowment-policy-are-never-best_08.html

      It might help you in future.

      Thanks
      Sahil

    2. Yea its good enough for now , I cant comment without understanding the full situation , but you need to understand what is your portfolio return overall and what are the risks

  35. sachin kumar says:

    ab 31 ka hoke akal aayi hai …. ive lost 10 years. But luckily in these 10 years i din fell prey to the classic LIC trap or Housing Loan burden. FD & ppf was only instrument i used for 10 years until i woke up from slumber… I hope Der aaye but durust aye!

    1. Better get some part of your portfolio in equity too !

  36. katamramarao says:

    good planing for future, this is true also.

  37. Venki says:

    A wake-up call for new naukris. Nothing new about the article from the book content, however worth reading those who are new to financial planning. Ironically, salary players (except few) seeks financial help only when things goes out of hand :).

    1. Thanks for your comment Venki

      1. Sameer Khadar says:

        Hello Manish,

        I have read all your blogs and it’s pretty clear, but still I need you help as you said I really don’t know where my first five years earning went… on helping the family and so far I don’t have any saving…. I need your help as how to start with…..

        I’m 100% sure many of you have gone through the situation that I have…so what step you guys have taken…..your help is really appreciated…

        Sameer Khadar

        1. sameer

          The first step is to START . do you have any SIP , do you have any RD ? What action you have taken for this problem yourself ? My guess if you are just telling yourself, “I will do it soon” .. right ?

          1. Sameer Khadar says:

            I don’t have any of these… what should I start with?

            1. ok , so now can you start a Recurring deposit from your bank account for 6 months ?

              Also start a SIP in HDFC Prudence mutual funds for 4-5k per month to start with

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