College-To-Corporate-To-Crorepati

Last week was very exciting. I got an opportunity to speak with college students on the topic “College-To-Corporate-To-Crorepati.” The objective of this seminar was twofold:-

1. How to transit from college life to corporate life? and

2. How to become financially independent from their first salary?

While speaking to these Gen-Z students, I was transported back in memory lane by almost thirty years. It reminded me of my good old college days. I studied in an Engineering college located in a remote city in Maharashtra. Those were the days when there was no Internet, no start-ups, no incubation centers, no campus interviews, and no placements. We had absolutely no clue at all about what is happening in the outside world. Even English newspapers used to reach the next day. The only thing most of us knew was to go to Mumbai or Pune and search for some or the other job.

However, nowadays, students are smart, and intelligent and have a lot of awareness compared to my era. The colleges are abuzz with start-up culture. The incubation centers and placement cells actively engage with industries. Hence, most of the students get placed through campus interviews and start their careers. However, many do not know how to behave early in their career. They struggle a lot and learn by trial and error. Hence there is a need to guide them about the behavioral traits desired to become a successful professional.

Similarly, when they start earning their first salary, they do not know where to invest, how to invest, and how to behave with the investment. They start investing without any knowledge by following tips and social media. In the bargain, many get lured into risky investments like bitcoin and trading in the future and options leading to loss of capital.

Hence it is essential to guide them on the correct path and handhold them to achieve financial independence from their first salary itself.

First Salary to Financial Independence ….

So, as a fresher, when you receive your first salary, you deserve to enjoy this moment. You have sacrificed many things to reach this stage. Go ahead and spend it on whatever you long for to date. Enjoy spending your hard-earned first salary to the fullest. But at the same time, remind yourself that this is the final splurging.

Next month onwards, get on track to achieving financial independence as early as possible.

As a fresher, if you follow the checklist below, I assure you that you need not worry about anything in your life.

1. Invest before you spend

Give a mandate to your bank to transfer money toward various investment options. This way, you will be left with less money in your account to spend. Slowly this will become a habit.

2. Thoughtful spending

Before buying anything, ask yourself these questions, “Do I really need this? Is there any alternative for this? Can I delay buying this? Am I buying this due to peer pressure or to show off?” Inculcate this habit of introspection and then spend only if it is necessary.

3. Life insurance

Life insurance is of utmost necessity. It is advisable to buy only term insurance. Do not buy any policy linked to investments. Investment and insurance are two separate things. Their purpose is completely different. Keep them separate. Ideally, you should buy a life insurance cover of 15 to 20 times your annual salary.

4. Additional health cover

Even if you have a health policy provided by your company, you must buy adequate health insurance coverage on your own. This will help you in times of recession.

5. Emergency fund

Ideally, you must park funds equal to 12 times your monthly salary in bank FDs. This is your emergency fund. Never touch this capital. The purpose of an emergency fund is to see through tough times like job loss.

6. Diversify

You must invest your salary in different investment options. Diversification of the portfolio is important. So, distribute your investible amount in various available avenues like EPF, bank FDs, post office schemes, bonds, and mutual funds.

7. Start SIP

SIP is going to be your best friend for your entire life. Invest in mutual funds through an advisor who is trustworthy, whom you know personally, whom you can contact anytime, and rely upon.

8. Compounding

Compounding is the 8th wonder of the world. You must allow compounding to work and never ever disturb it unnecessarily.

In my previous article “ A=P*(1+r)^n ” I have elaborated on the importance of compounding with examples. Please read that article again.

Many know that there is something called compounding; many do understand its importance, but very few practically execute this formula for wealth creation.

Let me show you the power of compounding.

1. Let us say you started an SIP of Rs. 50,000 per month at the age of 25

2. Increased this SIP amount by 10% per year

3. Continued this SIP till you attain the age of 60

4. Expected a moderate return on investment of only 10%

If you just follow this process, do you know how much amount you would have accumulated by the time you retire?

Rs. 68 Crores!!!

Unbelievable but true. This is the miracle of compounding.

The first salary is the stepping stone to achieving financial independence. If you inculcate these simple behavioral traits no one can stop you from achieving this goal. However, here is the catch. What looks simple is not always easy.

Charlie Munger said, “We have a passion for keeping things simple.”

Can you?