How a newcomer should start his financial life – 4 steps

POSTED BY Jagoinvestor ON November 26, 2012 COMMENTS (69)

Today we will talk about how a newcomer or a fresh investor start his investment journey. We will see 4 steps which a newcomer can follow to start his invstments. I see a lot of new people on the blog asking things like

Hey Manish

I am totally new to this world of investing, I just joined job 3 months back and it seems like I have no idea how to start. I can see my friends who have been in job already, but they have messed up so much in their financial life. I do not want to be that way and want to do best. Can you tell me where should I invest?

In today’s world of over communication and an environment where things look complex it’s no wonder, a new person is confused. While there cant be a one strategy that fits everyone, we can still propose a generic 4 step rule, which can help most of the fresh candidates and these 4 steps becomes more important these days because most of the people mess up hugely in the first 5 yrs of their financial life and they have no idea how important starting years are in financial life. So today, here’s a look at the 4 steps, I feel will be applicable for most of the people.

How a New investor can invest

Step 1. Enjoy for the first year – Spend !

Almost everyone who starts a new job has this feeling for a long time  – “Once I start earning, I will buy things for my parents! I will buy a bike! I will roam places! . I will buy that awesomely cool mobile which I could not afford when I was a student! . I will do this! . I will do that! I will go here! I will go there!” . Everyone goes through that feeling and when I started my first job, even I had those same kind of excitement.

You know what? This is totally acceptable and a 100% correct!

The moment we enter the world, we become the part of the rat race (remember 3 Idiots?)  We get good grades, we get into best school, study hard to get into college, and then finally land at job, assuming its the end of the race. At this point, if someone tells you – “Start Investments Early!”, what would be your reaction ? I would say that as a statement, its a great thought, but to a young guy (or girl), who is yet to get comfortable with the environment, it’s a foolish statement, distant from reality and kinda crushing the emotional side for their ‘desire to spend’ .

The only thing which makes sense at this point is to let all those wishes come true! Let the guy spend!. Let him or her spend on those things which he or she ever wanted. Let them splurge! . Buy things which they dreamt about for years . Let them travel! . Buy gadgets! . Shop for clothes and phones and whatever they wish to! .

I’d say, go for it!. Let it happen for the full 1 year in the start. After a year, the person should have done most of what he or she wanted, in that time, he or she should be more settled in the first job. He/she would have got a taste of “earning money” . Now! This is the good time to talk to him about finances.

Step 2. Start a Recurring Deposit and Start learning

The next step is to get started, to get into the process… The biggest issue which I feel with newcomers is that they do not have this habit of “regular investing” . Lots of people, when they start their financial life, want amazing returns immediately! . They hear about SIP from media, they hear about stock markets and real estate markets and suddenly the only thing that plays in their mind is “high returns”.

First, they need to work on their “habit of investing.” They should first understand, what it means to save regularly, they should first get a feel of how money grows over time. A person is mostly raw  in the beginning and needs some serious understanding of basic concepts and how everything works!  The need of the hour is “habit” and “education”. For anyone new to investing and who has just started his career, should read my first book “Jagoinvestor” where I talk about few fundamental principles of personal finance. From most of the people who have read it, they told me that it was an eyeopenor for them. If you want to get a understanding of what it looks like download this sample 1st chapter of my book and read it . It also has tons of reviews from other people who have read it already.

So coming to the point, what can this new investor do at this step once he is ready to take the plunge ?

I can think about 3 things here.

a) First, open a Recurring Deposit in your bank for a big amount which you can save. It can be 10,000 , 20,000 or even 50,000 depends on how much are you saving! . This will make sure that a part of your salary is now getting invested in a Recurring Deposit on a regular basis for next few months atleast. You can see some money regularly invested and get a feel of how money grows over some months. The money will also be safe.

b) This is also a serious time to start exploring and learning about the other kind of investment options. You can learn from all kind of websites, blogs and books written on personal finance and more. Ask questions if you have any doubts on our Q&A platform (we already have 4,000 questions and 20,000 answers on it). This phase will act like the preparation for rest of your life. The clearer the concepts and fundamentals to you, better it is. At this point, you should concentrate on learning things. Your money is getting accumulated anyway in the recurring deposit and is safe. So nothing to worry about there.

c) Apart from the above points, you can also start the background documentation & processes which will be required in the future. You can apply for your PAN Card incase you dont have, start a demat account, get your KYC done for mutual funds investing. If some document is missing, apply for it, & open more bank accounts if you think you would need them. It’s like, you’re getting all your weapons ready for the future.

For those newcomers who like to learn through Video’s – we have a 37 min course called Basic Concepts of Personal Finance on our Jagoinvestor Welath Club.

Step 3. Complete Most Important and Primary Tasks First

Now, you are ready & educated, have a good understanding of everything, gotten a taste of investing money and are ready for the next step. Now in any financial journey, there are few steps which you should take right at the beginning. These are like the “first things first” tasks. I see people on this blog, who have not completed these important early tasks even after 5-10 years of their first job. There are few things like

These are mostly one time tasks. Once you complete them, They are complete ! . You might have to pay a regular premium for few products, but the main task of taking actions in those areas are complete, which most of the people struggle with. Understand that, if you delay these most important tasks, they will just get pushed for “future” and it will take ages to complete those when you actually need them.

Remember, these one time activities complete a major part of your financial life. After this, you mainly have to just review these each year from time to time, and mostly concentrate on your “investments part”.  After you have completed these tasks, your primary objective is wealth creation. A lot of people I see are still lost in these primary, first level tasks even after years and years , just because they didnt do it in start and now when its time for concentrating on their wealth creation, they are still stuck in these primary level tasks.

By this time, you will be more comfortable investing in new avenues like Equity mutual funds, Real estate, ETFs, Stocks, and other investments. To start with and to get a taste of mutual fund investing, start SIPs in a a balanced fund like HDFC Prudence or HDFC Balanced or if you are too risk averse, you can also start SIP in Montly income plans (MIP’s) or some debt mutual fund.

4. Design your financial life and explore more

In the end, after  you’ve completed the 3 steps mentioned above, you can see, how easy it would be to extend your actions. I’d say the above 3 steps will take anywhere around 2-3 years depending on what kind of person you are and your circumstances. In those 2-3 years, you must have accomplished these things

  • You must have done a good amount of spending and fulfilled most of your wishes
  • You must be educated well about financial matters and have good clarity about your future.
  • You must have completed the primary level of basic tasks which any financial life needs
  • You must have saved a respectable amount through recurring deposits and other investments.

At this moment, you can plan the next 5-10 years of your financial life. Clearly define and prioritize your financial goals in life, and start investing aggressively for your wealth creation. Even if you feel like applying for a loan to buy home or car, you should be able to handle it in a much better way after the first 3 steps. Because you know about his future premiums outgo, & your aspirations more clearly. At this step, if you feel you need some kind of external help to get a better clarity, you can also hire a financial planner for yourself and work with him to get more clarity. A small investment for your financial life can prove to be worth.

You can see that with these 4 steps, the actions one will take will be more defined and realistic, rather than the random events, that push you & which gives an unwanted shape to your financial life.


You can see that these 4 steps are just about giving more meaning and a better shape to any financial life. It focuses on slowing down and then slowly moving forward in your financial life. Any new person is very excited about his life ahead and there are great chances to mess up. These 4 steps will help a person to move forward in his financial life. Good luck!

69 replies on this article “How a newcomer should start his financial life – 4 steps”

  1. Sushma says:

    I have been working since 2 years and have a baby now . I want to know about better kid plans .can u suggest me a long term plan for 18 years r so with monthly investment of around 5000

    1. Hi Sushma

      I can see that you are interested in investing in mutual funds. I want to share that now you can invest in mutual funds with Jagoinvestor as your advisor

      We create a FREE online account for you, from where you can invest and redeem online.

      Our team will be happy to explain you more on this.

      Find more at


  2. Sushant says:

    Hi Manish,

    Thanks for this article. I had a query. I wanted to take a health plan from Max Bupa. Shall I buy it directly from them or buy it via policy bazaar? Which option would be better? Also what would be the difference between buying from these two sources?

    1. Hi Sushant

      Thanks for asking your health insurance question. We will get on call with you and help you resolve your query. Please fill up your details at

      We will call you back


  3. PZ says:

    Dear Manish,

    I read your article and I think it is very helpful. But my scenario is different, I am working since 6 months and I have borrowed educational loan from bank so my 60% of salary debited in repayment and 30-35% salary goes in rent and monthly expenses which are necessary and difficult to avoid…
    Suggest me way of saving if you can see my scenario..

  4. priti says:

    awesome clarity. actually a step by step ladder for a new born who has just strted geting taste of money!

  5. nishikant says:

    manish Sir u are one of the best teacher , who mould the insight of others for there benefits !!! hats off..


    i have invested in Franklin india prima plus -Rs.2000
    Franklin india high growth Cos fund-Rs.1000
    HDFC balanced fund, please suggest what changes are required in my portfolio

    1. As of now no changes required. Just keep investing in same for many years to come ! .. these are good plans !

  6. ritzshaan says:

    manish u are one of the best teacher , who mould the insight of others for there benefits !!! hats off..

    1. Thanks for your comment

  7. Ashok Sharma says:

    Its great article. Its has taken my thinking regarding Investment to a new horizon….
    I have started after 3 years of my career…..It seems to be a bit late but i will surely move on positively…..currently started Recurring Deposit, Life insurance and PPF.

    Thanks for the great article…..

  8. Arshad says:

    Please keep up what you are doing. You cannot begin to realize how much you have helped people. I mean that.

  9. Rakesh singh says:

    thanks manish for your valuable guidance on financial planning

  10. arunima says:

    The article is really informative for newcomers. When I started my job journey started saving 80% of my salary through bank FD as I had my short term goals, took insurance, took an ULIP Plan for retirement planning . Then completed my short term goals , took a break for higher education (5 years) still contributing 60% of my scholarship through equity mutual fund.

    I am not earning a big amount still consistently saving as much as I can. So it is very important to start early in whatever ways you can keeping your goals in mind.Very good article Manish .

    1. Yea .. thanks for sharing with us that 🙂

  11. Rithesh says:

    Considering a long term investment , a time frame of 15+ years , what is best option between MF and ULIP . I saw full expense sheet compared for both with same 10% return and was surprised to see the cost is more for MF by a good margin . The expense is calculated on fund value and the cost drastically increases.
    Is this reading correct or am I missing something

    1. What about other charges in ULIPs like maintaince charges , policy admin charges etc etc

  12. Rakesh Podishetty says:

    Hi Manish,

    Go to know about this site from one of my neighbor, very informative and interesting
    can you help me suggesting how to start investing for my child future,do ypu want ,e to go for any child plan or is there any other smart way of investing so that my kid future will be better,kindly advise as i am very new to this


  13. Krishnan says:

    Nice blog.

    However, I will disagree with the first step. If you set a life styles of spending every thing you earn for your first year, it will be very difficult to come back after one year. For example, if you live in a house with 25K rent, and after one year it is possible to come down to a house with 5K rent? Little bit pampering is fine, but still they need to start understanding investment in first year itself.

    Also, imagine some one wished for a luxury car for long time, and he takes a loan the moment he joins a job. This will put him in debt trap even before he is in a position to manage money. I am sure you did not mean it, but I think it would be better to mention this, to avoid freshers misinterpreting.

    Please don’t misunderstand my words, overall this is a very good article, and I really appreciate your intentions.


    1. Yes I get your point Krishnan

      First point is , its not 1 yrs, its in first year what ever time limit satisfies you can work , it can be 6 months or even 1 yr and we are not talking about high level fantasies here like getting a huge car on loan , all we are saying is by being within limits, how can you make all your wishes. like spending your salary fully for first few months for what you wanted , not getting into a loan for next 5 yrs !

  14. rohini says:

    sir i am rohini.i am going to join a new government service . i will get 33000rs monthely please tell me how can i do my financial planing and how i can save my income tax and multiply my money

    1. This is a abstract question . Financial Plannign is a long exercise . You first need to look at what things you want to plan in your financial life and then plan for each of them , can you list some of them ?

  15. Aditya Naik says:

    Hi Manish,
    I am 23 years & interested in starting an investment plan.
    1.I had contacted one company online & they have suggested me to take LIC Jeevan Anand or Birla Sun Life Insurance.In both these cases i will have to pay approx.2600 for 25Yrs.
    On maturity i will be getting from LIC-17,62,500 & from BSLI-21,34,687
    2.Should I start a PPF instead in which annually,i will need to pay 30,000 & will be getting approx. 26,00,000
    Can you please suggest me?

    Aditya Naik

    1. Go with option 2 !

  16. Trader says:

    Nice article Manish! The world needs more advivce like this. Too many people are spending more than what is good or them and get in trouble sooner or later. But what do you expect if even our governments spend to much and load up way to much debt! I honestly hope that people follow your advice.

    1. Thanks for your opinion on this !

  17. Sanghmitra says:

    For age bracket of 27-31 years, what kind of health insurance is suggested? Do we still need it above companies mediclaim of Rs. 2-4 lac p.a.?

    1. All need adequare health insurance, what do you mean by “what kind of”

      1. Sanghmitra says:

        We have mediclaim from company worth Rs. 3 lac each.
        1) Firstly do we need another policy?
        2) In case of taking another HI, i mean what Checklist or treatments covered should we see for that age bracket.

        1. Is 3 lacs enough for you ?

  18. Randeep says:

    Very helpful one Manish!I read this today from Business Standard. A must read before you start investing. Though will be very helpful for beginners
    Understanding asset allocation and diversification

    1. Thanks for that link , will look at it !

  19. Rajan says:

    I have started earning somewhat 2.5 years ago.. and so far I have done following investments:
    1.started SIP in tax savings.
    2. Started RD of 5K every month.
    3. Invested some amount like 5K in stocks for learning purpose then stopped investing in direct stocks.
    4. created an FD of 30k for 15 months.
    5. Purchased lic jeevan anand

    Hope I am not late..

    1. Nice , I can see you took some good actions … Just review that they are aligned with your long term goals !

  20. Ravi says:

    2 words … Great article

  21. SANDIP says:

    Manish sir,response awaited.

  22. Promod says:

    Here are my 2 cents on what should a person new to the financial world do:
    1) As Manish said, let the first year be a chill around time.
    2) Then the person should do a complete Master Health checkUp. Show this CheckUp results to a good doctor to get his opinion to get a better reading if needed.
    3) Then go in for a good reputed life insurance putting in all the answers very honestly. Suppose your health report card did not show good results, work on them (Excercise, good quality food, supplements) and then get a good term insurance done.
    4) Get your emergency fund (of 4-7 months monthyl expenditure) in place.
    5) Get your PPF account started with a good bank.
    6) Then slowly figure out what your values are? Ie:- whats going to actually make your happy in life… remember this excercise WILL take time and sometimes I felt this thinking should start right from day 1 of your job. By now, you will have the reality of job/business/life setting on to you… so this excercise is important.
    7) Start diversifying your interest’s into other activities like personality devl, communication skills, people skills!!
    8) Ensure that you keep a eye on your health, parents happiness, relatives!
    9) Always go back to your basics to see if you are deviating from your values of life.
    10) Think of ways to have a secondary source of income.
    All this should be done by the end of second year. Free up your 80C from all the unwanted ‘policies’ and make it as flexible as possible! Finally, remember to smell the roses along the way to your dreams! Live, Love and Toil for the hands of time may stop anytime!

    1. Nice points Promod ! 🙂

  23. SANDIP says:

    Hello manish sir,
    When I approached SBI to open PPF for my father (age -62 yrs,retired) they refused to open siting a reason that only people who are working can open that.Is it true?Is there any extra benefit for senior citizen in PPF?


    1. Sandip

      There is no such rule for opening a PPF account . Ask them for the rule book or any thing like that, if required file a RTI and ask this question in that, you will get an official reply on this


  24. Jagbir says:

    Manish, its really a good article and very useful for new comers. Such post’s link should be there in welcome kit of new joiner 🙂

    However, I’m not comfortable with point that one can spend money in first year and then start saving. We first make our habits, and then our habits make us, therefore, start living lavishly in starting itself will raise our standard of living may be way beyond the earnings and then next year there will be plenty of excuses to “delay the saving/investment”. Recalling a famous saying in this context… “Chains of habit are too light to be felt until they are too heavy to be broken.”
    More prudent advice would be to start saving small amount, might be 5-10% of salary in initial time and then raise this according to salary hike etc.

    1. What i mean by sending in first year is not going beyond one means , but only fulfilling those wishes which are long due . the idea of spending with limits still applies. The point is “save from the first month” is amazing and prudent, but will fail in reality. Most of the people want their freedom to do what they wanted from long atleast in starting months exists . I would say that finally it would also depend on how a person feels about money adn his own behaviour . Like I personally didnt splurge a lot in starting because I am that kind of person 🙂 .

      Take my points looking at the majority of people and how they will look at it , A good point is useless if not accepted in real life.

  25. vignesh says:

    Hi manish,

    I am lucky enough to see your blog one and half year(exactly when i got my first salary) . On getting my first pay check i thought of taking an insurance (worst endowment !!!).. and it is your blog which helped me to understand the basic tenets of investing and helped me to take an informed decision now i am confident enough to understand what am really doing and i have shared your blog to many of my friends. I am very thankful to you.. throughout my life time:)

    Thanks ! eventhough i have completed Engineering i was unable to take a decision when it comes to finance (when i received my first pay check). You made me to learn everything…

    Continue your work. Thanks a lot!!!

    1. Good to hear that Vignesh 🙂

  26. Ritwick Das says:


    Read and implement at the earliest so that you may not regret on alter stage in life………

    1. Thanks for your comment 🙂

  27. Vishnumoorthy Adiga P says:

    Hi Manish:
    Really good article and I was looking for one. Can you please address my doubts?
    1.Where the emergency found should be kept? In SB account or in a balanced MF? and how much this amount should be?

    2.Why you are insisting on PPF account? In which way this will be helpful?

    3. Now I have 2.5 years experience in job. My firt 2 years earnings went to clear education loan and other lending. Now how should I start my financial planning? (Please Note: Keeping 10,000 in RD is difficult with my present income and commitment.)

    Please guide me for these questions Manish.

    Thank you,

    1. vignesh says:

      Hi Vishnu,

      Le me answer all your questions in place of manish.

      1. Emergency Fund:

      This can be your 3 months to 6 months expenses based on the number of dependents you have!! If you are in the lower tax bracket you can have a Auto sweep account (excess money always acessible but get you fd interest) or liquid fund (many amc started providing ATM card) .SB account gives you 4 percent and i am very confident your auto sweep accounts and liquid fund will earn you more. The basic objective of emergency fund is acessibility . By inveting Emergency fund in a balanced fund the basic purpose is not solved. Redemption of balanced fund takes a day or two(it takes time !. Not sure of how many days) .and Please dont go for Equities for a short term.

      The above two post tells you abt the Emergency fund and Auto sweep account!

      2.PPF is the only one product tax free(EEE) on the interest(apart from the tax free bonds). All SIP and other stuff depend on the market . In the last five years if you see sensex has returned 5 -6 percent (i mean single digit return). always while planning for the goal debt portion is always good one to have for the guranteed returns..

      Below are the PPF post

      3. Coming to your third and final question

      I suggest you to go through the Manish book and understand the basic products available by reading the replies in the jagoinvestor old articles and jagoinvestor forum. and learn where not to invest!!!that s really important!!!

      All the very best!!

      If i generally have any doubt jaginvestor is like a online financial dictionary which has articles on all types ..

      Read and post your reply!!!


      1. Vishnumoorthy Adiga P says:

        Hi Vignesh:
        Thanks a lot for your valuable advices. I will sure go through thelinks you mentioned 🙂


      2. Thanks for helping him and sharing my workload 🙂 . Many thanks !

    2. Vishnu

      1. You can keep it in FD + Saving bank

      2. there is no insist. you can do if if you find it suitable !

      3. First work on your security part , like term plan , health plan and then start investments !


      1. Vishnumoorthy Adiga P says:

        Thank you Manish 🙂

  28. VIVEK KUMAR says:


  29. Santanu says:

    Thanks Manish for another useful post. I can see myself in step 3 as I am exploring Term insurance, Health insurance, child plans, retirement planing etc. Although I have started few of them, but still studying and learning day by day.

    1. Thanks for sharing that Santanu 🙂 .

  30. rohan says:

    good one…..

  31. shashank says:

    Hi Manish
    Returned to this site after 3 months and its really worth following your blogs till date, will surely share it with my friends, juniors or ppl who still need financial guidance.

  32. vijay singhal says:

    simple but powerful article…

  33. Sangita says:

    i have invested but all in random and very late in career… left out only on mf and may be shares. Learnin it slowly

    1. Good . No worries on learning slow . Just keep doing

  34. ashok says:

    Dear Manish,

    Well said. Very nice to the new comers..But there is one more category of people who get awareness in the later age say 30+ or 35+ or even 40+..It is good if we get a doc for those new comers also.
    In my case, I have enough Term plan and Mediclaim. But.. I have started investing in MFs and ETFs and stocks..But I have housing loan also. I found one day that the earing from the MFs are very less compared to the interest of HL… So, I kept 6 months pay for Emergency fund and rest all I pre payed the home loan. Due to this, I am unexpectedly will become a new comer for the investments after 5 to 6 years after clearing the HL..
    Have I done any mistake.. please guide me..

    1. Very nice .. you have done a right thing , you went ahead with your logic and I think you are going right !

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