In your twenties, and broke? Here's help

Got a question about your money? What you should or should not do with it?

I'm expecting around Rs 1,20,000 as incentives. Around Rs 70,000 will be given to me now and I will get the balance around six months down the road.

My monthly take-home is about Rs 12,000.

My credit card debt is Rs 30,000 and my monthly expenses are around Rs 6,500.

I am 26 and have no other investments other than an LIC policy.

I intend getting married in around three years and would like some financial stability by then.

Should I opt for a wealth manager?

- Peter Abraham

To seriously contemplate saving and to be determined to start is an excellent first step; you are already on your way!

Use your incentive to pay off your credit card dues. Then, set yourself a spend limit and stick to it. You can even ask the credit card company to lower your credit limit. The amount should be such that you can pay it off every month, without rolling it over.

You are in the early stage of your life and are likely to have some unexpected expenses. Keep some money handy in a sweep account of a bank. Here, the money is kept in a fixed deposit but you can withdraw portions of it just like a savings account. The balance will continue to earn the designated rate of interest.

You could also keep money in a liquid or short term fund. Read Tired of your savings account? Try this to understand more about these funds.

Open a Public Provident Fund account and put in some money every month. PPF agents will be willing to collect your cheques and deposit them.

Open a Systematic Investment Plan with a mutual fund and ask your bank to directly debit the amount from your account every month. To understand SIPs in greater detail, read How to invest in a mutual fund.

You can consider investing the balance amount of your bonus in a tax saving equity scheme. These are mutual funds that invest in the stock market and even offer a tax benefit. Read Invest in an ELSS fund to understand ELSSs better.

This investment falls under Section 80C (which offers a tax benefit). Read All about Section 80C to find out what other investments are included under this section.

Most banks sell mutual funds and insurance products. Ask to see a relationship manager. If your bank does not offer the facility, walk into any mutual fund office. They will accept your investments and tell you who are the agents/ financial advisors who can help you.

Many financial advisors also have offices. It is easy to spot them from the bunches of application forms and brochures they display.

• How a couple can manage finances

I am 27 years old. My wife and I draw a monthly salary of Rs 25,000 each. We got married two months ago and have no savings at all.

I would like to save around Rs 60,000 to Rs 75,000 in the next few months to buy a car.

If I buy a car worth Rs 3,75,000, I need to take a loan of Rs 3,00,000.

Should I go for a larger equated monthly installment and pay it off quickly or opt for a lower EMI but stretch it over the years?

- Vikas Singhal

It is a good idea to begin with some form of budgeting.

Start by writing down your major expenditure. You don't have to write down every detail; a broad round number to capture some of your spends will do. That will give you an idea of why you are not saving.

Sometimes, small things add up but we don't realise how they impact us.

Both of you should then agree on what your priorities are and how you like to spend your money.

Read How to start saving to make a start.

If you choose a large EMI, you will end up paying your loan quickly and saving on the interest outgo as well. It will also help in curbing some of your spending.

Once you have paid the car loan, you can begin to save some money. By then, you would have got accustomed to not spending the amount that is your EMI. You can start saving that amount as soon as your loan is cleared.

At the same time, it is important to be realistic. Don't set an ambitious target and end up being unhappy with the EMI. You have to choose your comfort level. Make sure both of you agree about the EMI and are willing to make the necessary budget cuts to clear it.

Illustration: Dominic Xavier