Considering the plethora of investment options available today, it is understandable that a new investor, with limited knowledge and experience, will get overwhelmed. However, if done methodically, financial planning becomes quite simple for a new investor. Although the one-size-fits-all model doesn’t apply here, a general set of steps could be followed by all new investors.
You can take the liberty of spending in the first year: When you have just begun working and income has started to flow in, saving and investing are generally not on the top of your mind. You would wish to buy things you had wanted for long, but could not afford with the pocket money you got as a student. You might want to buy gifts for your parents or relatives. Or, you might want to travel and experience new places.
While it is often said that the earlier you start saving, the better it is, it is acceptable if you spend freely in the first year of your career. For a young person, ‘the desire and freedom to spend’ is of great importance, and anything which curbs this becomes an object of hatred. Hence, if saving and investing are thrust upon you right from the start, you become averse to them later. You have not yet benefited from the money that you have earned and many desires remain unfulfilled.
So, it is not wise to talk about things like finance and financial planning at the beginning itself. You can take the liberty of splurging during the first year, so that at the end of the first year, most of your wants are more or less fulfilled. After you have settled into your job and enjoyed spending your own money, you can start getting serious and look at planning your finances.
Learn various aspects of finance: It is easy to take the help of a financial planner. Although this is a more professional and organised approach, you must also get your own hands dirty.
Understand the basic concepts of saving and investing, and also how each investment avenue works. Appreciate the positives and negatives of every asset class. You can refer to the internet, newspapers, personal finance magazines and books and also attend personal finance forums to improve your knowledge. When you are clear about the fundamentals, you can easily understand the various happenings in the market and also what your planner is telling you.