IT sector! One of the most flagship sectors in our country where large no of young people get their dream job.
India is a land of Engineers they say & this is one of the reasons many of the youngsters get their job in IT.
We have IT hubs in Pune, bengaluru, Chennai & this particular sector has created lot many employment opportunities in & around this sector & cities.
IT has also helped in increasing standard of living of many lower middle- class & middle-class families.
Earlier, there were majority of the members from a family who used to run some business or used to do farming or used to opt for a government job. But now, there are members working in IT!!
Why IT employees should consider financial planning?
- Lack of time to pay attention:
Well, when we have this increasing no of people working in IT, they are drawing their higher salaries, buying homes, applying for loans & investing in various instruments, they are not getting enough time even for their own self & to look after their personal finance.
- Different structure of payment system & working life:
Even if they start their investment journey properly soon after starting their first job, eventually due to longer working hours, work stress, sometimes complex structure of payment system & pay structure which includes bonuses, incentives , different perks; they eventually loose a track of their personal finance.
- No pension to support post-retirement life:
Like other private sector employees, IT employees too don’t have any pension system to support their post retirement life. Though the situation is similar for all, only difference IT employees make is their ‘pay structure’. It is relatively higher than other private sectors which further increases their standard of living, spending patterns. To maintain the same throughout their life, they need to plan their finances well since beginning.
- Early retirement:
IT sector is one of the sectors where technology, working methods keep evolving & changing. People working there, need to keep learning them in order to be in the competition & survive well. As the age increases, work pressures along with a pressure of learning new things every now & then increases.
Longer working hours add pressure on the health & well being too.
So, it is always on the mind of every IT employee to get early retirement. But early retirement means longer post retirement life to support financially.
To find the solution to these common problems, IT employees can manage their money as follows-
- Keep A track of your cashflows:
A fresh engineering graduate, who has a habit of managing his monthly expenses on a pocket money given by parents, when gets a first dream job in IT, he/she gets a dream pay cheque too along.
Getting comparatively higher money to spend, is quite new for a fresher. Some start spending it on the things they always wished to buy or possess, some utilize it to pay off their education loan if any, while some start investing along with spending.
We have always seen our elders at home writing their monthly expenses & managing it by following their budget.
Many of us think it is an ‘old school theory’ & don’t follow them in this. Many even though want to follow it, they don’t get time to maintain records of these expenses.
Today, we have many simple ways to keep a record of our expenses like maintain simple excel sheet, using software which are specially made for cashflow maintenance or by writing them in a diary.
Any of such ways we can follow to keep a record of our weekly or monthly expenses.
- It will make you aware of your income & expenses on a monthly basis.
- You can prioritize & plan your future goals with the help of this.
- Today, we spend money via offline & online mode too. It has so become necessary to keep a track of these expenses.
- Money spent on discretionary expenses such as shopping, hoteling has seen the rise. To match or increase the standard of living, people spend on such things.
So, if you not maintaining any record of your money flows so far, then please start doing it.
Create a contingency fund:
Contingencies come without knocking on the door. They can be anything right from pay cuts, job loss or sudden hospitalization, etc.
To face the situation, we need to be ‘financially prepared’ first so that we can handle our emotions time & energy to deal with the situation.
Its better to create a contingency fund for us which is equivalent to 1 year of our ‘monthly expenses’.
Monthly expenses should include money spent on grocery, children education fees, medical expenses if any,
Loan EMI amounts, utility bills to pay etc
Suppose our monthly expenses sum up to Rs 50,000, then we should maintain contingency fund equivalent to Rs 6 lakhs.
We should invest it in short term/ flexi FDs with nationalized bank, a part of it can be invested in debt liquid funds & part can be maintained in one dedicated savings a/c.
If you have investments made already in such short-term debt instruments, then please dedicate it towards this purpose first.
Never ignore insurance:
Insurance is prime pillar of our personal finance. IT provides security cover to our money & wellbeing.
When it comes to insurance, one should consider ‘life insurance’ & ‘health insurance’.
When in IT, people are given term insurance cover by their respective employer. Many also opt for other life insurance policies, like ULIPs, endowment plans.
Considering their income, they also get mis-sold with market linked insurance plans many a times.
If you are one of them, then please review your insurance policies.
Life insurance is always meant for the ‘dependents of the insured person’, so that if unfortunately, the earning member i.e. insured person dies, then his family & dependents can survive well financially & lead financially independent life.
‘Term insurance’ is the only type of insurance policy, which serves the very purpose of life insurance.
One should opt for a ‘term insurance’ for him/her. One can apply directly from ‘insurance provider’.
A thumb rule is, one should have a ‘term insurance cover’ for a minimum amount of 10 times of his/her annual income.
Health insurance is one such important insurance.
Like other private sector employees, IT employees do get a ‘group medical cover’ from their respective employer.
But the cover seizes once they switch their job. In next job, new employer even if provides that medical insurance, then terms & conditions may change respectively.
In a rare case these days, if the person stays with single employer till retirement, then the insurance cover seizes upon retirement. To get a personal health cover at such age can attract lot many terms & conditions along with longer waiting period.
To avoid complications, one should apply for a ‘personal health insurance cover’.
Decide on your future goals:
IT employees can invest quite a good amount on a monthly basis considering their income range. But investing randomly will not help much. Decide & prioritize on the goals instead.
Fix your future short, medium & long term goals. This will help you to decide investment tenure. Risk appetite required for your investment to achieve your goals can be understood well.
When you have the above, you can further decide on the investment option.
When you plan your investment according to your future goals, risk appetite & tenure, you are likely to have the best possible returns on your money invested. IT also gives discipline to your investments.
Consider passive source of income:
Being in IT, you may think of retiring early. You may get quite a good amount in terms of retirement benefits, gratuity, maturity corpus from your investments which together can make your ‘retirement corpus’.
If you are really considering early retirement, then please start considering ‘passive sources’ of income for you. Here, you can think of starting some venture which relates to your hobby. If you are skilled at something, then you can think of starting something related to it.
Slowly you can be able to draw income which is equivalent to your salary.
This will give you sense of happiness & confidence which can further strengthen your decision to retire early from services.
IT sector is volatile in terms of job stability. Employees always live in a fear of sustaining their jobs, to be in the competition.
Passive source of income can be your alternative source of income if unfortunately you face pay cut or job loss.
Don’t be greedy to match with others lifestyle:
Higher income means higher lifestyle inflation. Peer pressure is also the reason behind it. To match the lifestyle with that of other colleagues or friends, to increase standard of living due to higher income that you draw every month, you should not become greedy to achieve everything.
Even if you can get loans, you should not opt for too many loans like personal loans, vehicle loans, home loans all at same time.
Its better to wait & build your empire one step at a time. This will not cause unnecessary burden on your cashflows.
Every nature of employment demands different approach to manage money & plan our personal finance.
If you or any of your loved one is in IT sector, then this piece is for you!