I was wondering whether I should single out lawyers or doctors for a post like this. Then I realized that all of us – MOST IMPORTANTLY CHARTERED ACCOUNTANTS TOO – need to know some financial does and do nots…so here it is…
- As soon as you start your practice (even if you get a job) YOU MUST get a second job which pays dividends in the long run. What is this job? Looking after your finances as if you are being paid a salary for that. Remember this second job, if done well, will look after you for about 40 years of your life. So set aside 7-8 hours A MONTH to look after your finances. This second job is just as (if not more) important than your first job.
- Keep increasing your financial education: there are many websites meant for professionals and amateurs to learn about money. The blog site that I run (www.subramoney.com) keeps breaking some myths that you may have picked up along the way. There are other national and international blogs too that you should keep reading. Whether you are a CA, Lawyer, doctor, or architect, this financial learning is a must. Our education system sucks – these basics are not taught to you. Financial journalism is very biased, so be careful about what you learn and what you understand.
- Find a good financial adviser who will play the role of an adviser (for a fee) and also a financial ‘go to’ person who can be your sounding board on everything financial. Difficult to find, yes, but absolutely invaluable if you can find him/her preferably at least about 10 odd years older than you.
- You will save at least 20% of the money that you earn right from the first stipend/salary that you receive. Chartered accountants receive Rs. 10,000 per month while doing their articles, and doctors receive Rs. 9000 during their internship. It is difficult to save much, but make an attempt to save something out of this -and it is perfectly possible to do so if you are staying with your parents.
- Offer to repay the education cost to your parents, and start paying for household expenses, phone bills, etc. if not rent for staying with your parents. You can offer to run errands if you are unable to pay much towards expenses. Do not be a free loader, it is not fair on your parents.
- You will take medical insurance, term life insurance, and any other type of insurance needed by your profession – like DandO or professional indemnity – as the case may be. Do not ignore this – a professional can be ruined. At the same time ensure that your parents are also properly covered by medical insurance.
- You will not take a Unit Linked Insurance till you learn how such a policy works. Yes some of the writers have made ULIP and classic endowment plans look like terror but it is a difficult product to understand. So no endowment or Unit linked or Moneyback policies – plain vanilla term insurance is what you will buy.
- Till you learn how to select a mutual fund and how to build a mutual fund portfolio or know how to find a good adviser, you will invest only in index funds. Period. Term insurance + Index funds is what you will do.
- One savings account, one medical insurance policy, one term insurance, one index fund, one credit card. After this you will say NO to any financial product. Your next aim is to find a good financial adviser who will teach you how to do things. Then pay him according to the time that he spends with you and at the rate that he asks for. If he is good any rate is good, if he is bad, any rate is expensive!!
- You will understand how much to borrow – keep it to the minimum and at the lowest rates. If you are buying a house make sure that you have ONLY a housing loan. Arrange your finances in such a way that your car loan, etc. just disappear.
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