When you are young and on your first job, you aspire to achieve all your dreams and desires. Not all dreams can be fulfilled immediately.
Some of them require careful financial planning and the exercise of prudence.
Start a Contingency Fund on Day One
When you start your job, the first thing you need to do is to start a contingency fund by putting away a percentage of your salary towards emergencies. This will stand you in good stead as it will build over time. Control the urge to touch this fund unless a real emergency arises.
Never treat your credit card like an extension to your paycheck
Once you get a job, banks will offer you credit cards with attractive schemes. In today’s world when you have a debit card, you have a cashless wallet anyway. There is no real need to hold a credit card in your personal account. In case you would still like to have one, be sure that you can pay off the entire balance on the due date. Remember that outstanding balances attract an interest of over 2-2.5% per month which can pinch you hard. Holding multiple credit cards is an even more dangerous trend as you get the impression that you have unlimited funds. Remember your fund is limited to the money in the bank. Everything else comes at a cost.
Control Discretionary Spending
When you are flushed with cash and there are offers galore, it is very easy to get tempted to splurge. Resist the temptation and spend within your means. You will find that if you cut off frivolous spending, you will be able to save quite a bit in the initial years. If you can exercise self-control and avoid getting hooked to smoking or drinking, both your body and your wallet will thank you when you are older.
Maintain a Monthly Budget
If you learn to keep a monthly budget and adhere to it, you will be on the path of financial stability sooner than you think. Most people spend whatever they earn and use their credit cards if they run out of cash. They believe in living in the moment with no care for tomorrow. It makes a lot of sense to understand the need to stick to a monthly budget. When you start planning for big-ticket expenses, you will have the space to fit in an EMI or two.
Use a personal loan instead of credit cards
Once you have set up a contingency fund and learnt to stay within your monthly budget, you have built the maturity needed to handle debts. Stay clear of credit card debts. Explore the personal loan option if you are in genuine need of funds for –
- Rental Deposit
- A new gadget you have your eyes on
- Higher education expenses
- Medical Emergency
- Investment Idea
Personal loans are available to Indian Citizens or residents over the age of twenty-one who earn a minimum monthly income of Rs 30,000.
If you need instant funds for these, you can visit LoanTap and fill up an application form and upload the following documents –
- PAN Card
- Aadhaar Card/Passport/Driving Licence for proof of residence
- Salary slips of last three months
- Bank Statement of Salary account for the last six months
The LoanTap team will evaluate the application and if found satisfactory, the loan will be disbursed to your account in 24-36 hours.
Know your credit score
Before you apply for any loan, it is better to know your credit score. Your credit score or CIBIL score is a numerical summary of your credit history. Once you have six months of credit history, TransUnion CIBIL collects the information from all the banks and compiles the credit information report. A numerical score between 300-900 is calculated with 300 being the worst and 900 the best measure of creditworthiness. A credit score over 750 is considered good and most often loan applications with such credit scores are approved easily.
Never default on a loan payment
Unless it is due to unforeseen circumstances, it is better to adhere to the due dates. This removes undue stress of delayed payments, penalties etc and also ensures that your credit score is maintained. This will help you when you need to apply for a fresh loan.
Do not apply with multiple lenders at the same time
When you are applying for a loan, do not approach multiple lenders at the same time. Lenders lose interest when they find out that you are applying with multiple lenders as it highlights the urgency of your demand. Stick to one application and try another only if this application gets rejected as it would protect you credit score too.
Use a Personal Loan EMI Calculator
Before applying for a loan, you can use a personal loan EMI calculator to work out the amount of EMI for different loan amounts and tenures with the interest rate of the lender. This will help you to arrive at the EMI that is most convenient for you and fits your monthly budget.
A personal loan doesn’t really lock you for the entire tenure. For example, LoanTap offers personal loans starting at 18% per annum in the range of Rs 50,000- Rs 10,00,000 for a tenure of six months to five years. That doesn’t mean you need to be locked for the entire tenure. After servicing the loan for six months, you have the flexibility to pay off the entire loan or a part of it without any prepayment penalty. So if you get a bonus or have a salary increment, you can choose to prepay your loan without any additional penalty. Before you enter into a personal loan agreement, it is better to confirm this point.
Flexible repayment options
LoanTap offers a variety of repayment options to help borrowers manage their EMIs comfortably. You can choose a step-up option where you pay only the interest component for the first three months and pay the normal EMI for the balance period. This is useful in case of a wedding loan or a medical emergency.
You can choose an interest-only EMI where you will pay only the interest component and the principal will be paid in bullet payments. In the case of rental deposits, LoanTap enters into an agreement where they pay the principal directly to the houseowner. You pay only the interest component and the principal is returned back to the lender when the lease expires.
This would give you a fair idea of how to plan your expenses and your personal loans when you are young and just embarked on your career. A well planned and executed financial plan can help you move ahead faster in life. For all your personal loan needs we are just a “ Loan Tap” away.