Update (Apr 11, 2020): Many portions of this post pertaining to finances may be best suited only for India
Like many of you, who are joining the professional workforce, I also started my professional career some 10 years ago.
I didn’t have many people to tell me a lot of these things, so I learned them after burning my fingers.
Back then, the Internet was popular, but not ubiquitous, affordable and fast, like today; So I also didn’t have a lot of options to read through the information already available online and make informed decisions.
So what I am sharing with you here, is a set of hard learned lessons, which I hope will help you.
About Your Work-life
You’re not your company
It’s a nice thing to be good in your job and contribute to your company’s or employer’s growth. But you should also build yourself. You should work hard and honestly not just for your employer, but for yourself too.
Because the hard truth is, the company can replace you as soon as you’re no longer needed.
Define and then pursue a Career
Career is when you look 5-6-10 years back and see what you have achieved. You work hard and achieve things in your present, so that when you look back at your “career” later, you have a good list of things that you’ve done. So focus on what you can work hard on today.
Give yourself time to settle in
I have noticed that it generally takes some 3-4 months (in startups) and some 8-9 months (in big companies) for you to figure out what is happening, what’s your work, your role and your place in the team. Till then, it can make you feel a little out of place, and uncomfortable. I took this feeling as signs to move on, and switched too many companies too often.
Unless your employer is genuinely mistreating you (e.g. delayed salaries, crazy work schedule, deceitful behavior etc), or hampering prospects to your career (e.g. you are not producing enough meaningful work etc), leaving a company too soon is not advisable.
Try to leave a legacy
Try to leave a legacy wherever you work, whatever you work on. Is there something that can be attributed to your name? That’s the kind of things you’d want to look back at, and include in your CV to make a powerful profile. For example, things like “Worked as a truck driver for 5 years” sounds way less worthwhile as compared to “Moved 1000KGs of cargo around the Nation for 50000 KMs” Or, instead of looking back and finding that as a software engineer “You worked as a programmer on client’s projects”, if you have “delivered 6 successful products to clients end to end, and here are their links (if allowed)” is a lot more exciting and fulfilling for yourself and for anybody who’s looking at your profile.
Always be learning
There’s no question about this. Knowledge is like water. And still water stinks. Let it flow. Pass on your knowledge to others and learn from them at the same time.
This is also beneficial in many industries, where unless you’re updating your knowledge frequently, your growth stagnates.
So keep learning. Find meetups or online-groups of like minded people and professionals, share and learn with them.
Choose a leader, not a boss
When getting hired, or during the interviews, try to spend as much time as possible with the person you’ll be reporting to. Will they be a good leader, or just a boss?
The ‘Boss mentality’ generally wants you to consider every single thing that they say as the line drawn with stone. They generally don’t give you enough chances to grow intellectually, and they also often do a lot of micro-management, making you feel stifled.
Leaders on the other hand, genuinely want to see you grow, and their working style is on the lines of “I’ll tell you what to do, and give you a direction. I won’t tell you how you get it done”. This gives you freedom to experiment, to learn and to grow as a professional. Good leaders enable to you to be a better professional every day.
Then, work for that leader, not the company
Look for a good manager/leader to work with, instead of a company/tag to work for. Companies, businesses, are only concerned about profits for their shareholders. Not you (most of the times). Any company can replace you easily. A good leader may not be able to stop that, but they’ll certainly make you a better professional with their mentor-ship and guidance, as long as you’re working for them.
You’ll enjoy your days working with a good leader. As compared to working with a bossy manager, who can make your days miserable, and at the end of the day, when your company replaces you, you’ll be heartbroken.
Read your offer letter carefully
Sit with a lawyer, if its required, Or with any other experienced person in the family, in case you don’t understand something. With time, you’ll get better at reading and understanding the legal jargon, but this habit will make sure that you’re well aware of your rights through-out your employment.
Things like your salary break-up, non disclosure and confidentiality agreement, termination clauses, conflict of interest etc are always good to know, apart from notice period etc.
Be polite with your language. Before sending your emails, read them as a third-person, and try to think “does it feel polite?” If it doesn’t, change your tone.
If your emails are too long, people will tend to read it later, and later means never. Strike a balance between length and brevity. Come to the point quickly.
Also, emails are a legal document. Don’t write your emails in a way that you won’t like to be read in a court of law, in any unfortunate case. Going overboard with this concern can weigh you down too, so avoid overdoing it as well.
Interactions with people
When meeting with people, again, be polite. It doesn’t harm to be attentive to them. Hear to listen, not to respond. Let the people finish speaking first, before responding.
It’s completely okay to not know something. You can always learn, from the people you meet.
Please don’t have a careless attitude (“whatever”, “I don’t care”).
Everybody likes to be respected with their time and value. If you commit to a time with someone, honor it.
The world works on the principle of Give and Take, and fairly so. You give value, before expecting to receive value. When making a deal, exchange, transaction of any kind, with anyone, think how you both can come out winning from the exchange, not just your own benefit.
This will earn you lifelong trusted professional relationship with people, which you use as you grow older in your field.
For example, after a point, you’ll become too senior and too costly for any company to hire. Many of the roles that you can work for, will never be advertised too! That’s where your professional relationships will help you. These are the people who will remember you, endorse you, and even will create jobs for you if required.
Apart from a job, even if you start your own venture, merely announcing it to this network will do wonders for you. Since these are the people who genuinely want you to succeed, they’ll suggest you ways which you wouldn’t have thought about on your own.
Sit with a CA (Chartered Accountant), and understand basics of taxation. Make a professional pro-bono relationship with a CA if required, but trust me, this will save you a lot of headache later. There are a LOT of things that you will not know about how taxes work, and you can not learn them overnight. So sitting with a CA for some tips will at least get you started, and after a few months, you’ll get a grip on how to navigate and understand taxes.
Here are a few tips from my side:
- What are your options to save the tax : Almost every country has these measures, use them. Things like long term EPF, PPF, LIC, ELSS in India, and similar things in other countries fall under this.
- In over simplistic terms, the government wants you to give them money, so that they can use it to build the country. You either pay them this money as a tax, or use any of the above method to “deposit” this money with the nation for a long time.
Switching jobs in the middle of financial year
If you switch a job in the middle of the financial year, and are going on a different pay package than your current one, your tax calculation might get impacted. If you can get form-16 (in India) from your old employer and submit it to your new employer, they might be able to calculate the right amount of tax that should be paid to the government and how much should be deducted from your salary every month.
Nevertheless, if you don’t get hold of your form-16 or your new company is not helping you, your CA should be able to calculate if you owe any taxes. You can pay them through the means that your CA suggests.
Because the catch is, If you have taxes pending, many times you’ll never know, you’ll get no notification, while the pending tax amount will continue to attract penalties and interest. Then one day, when the penalties and interests mount up to an amount which is too big for the tax department to ignore, you’re served a notice of possible tax evasion.
At that time if you’re serving a public role (let’s say, CEO of a big company), then your image is at stake. You’ll generally not get the newspapers or media to report it as “you missed a tax 20 years ago”, but the headlines could be like “you evaded 2 million in tax”.
This won’t be pleasant.
Payroll department is not your friend
Your company’s accountant or payroll department is not interested in helping you save money. They somehow are more interested in making sure the government is not going to get after the company. So as long as those legal requirements are met, they won’t mind if you lose your money.
This is a hard and sad truth. Because when you work for your company, you do the best for it, and you expect the company to do the same when it comes to saving money for you. You’ll often find out that the departments at the task of doing this, are not bothered about saving you money.
So take things into your own hands.
About Saving, Investment and Wealth Creation
Start documenting your expenses
This will give you a better idea on how you’re spending your money every month, and grab a pattern out of it. You’ll realize that there are some fixed expenses that you have - phone bills, rent, groceries, food etc. The sum of amount for fixed expenses is what you lose no matter what, and these are essential expenses, you can’t do without them. Try to make sure that these are just 30% of your monthly income. Can you move to a place where the rent is lower? Can driving a bike or taking the metro going to save you more than the car?
Then there will be variable expenses - movies, shopping clothes, eating out etc. If these are not essentials. These can again be 30% of your monthly income, but in cases of need, these will be the first thing to take a hit, and to be cut down.
The rest of 40% could be your saving and investment.
Save like an expense
I made the mistake of saving from whatever would be left by the end of the month. Most of the months, there will be nothing left out of my salary, which means, no savings!
Then I flipped the model. The moment my salary comes, I transfer a certain fixed amount to hard cash savings the same way I pay my bills or rent. This has helped me to accumulate some liquid cash over the last few years. And since I am more of a liquidity person, I like having at least some cash in bank for immediate needs. I just wish I could start this earlier.
Once you figure out how much money you can safely invest away every month, you can work to save it as the first thing of the month, rather than the last.
You can set up a recurring deposit with your bank, just to get started with this habit, by selecting a date nearer to the beginning of the month. You can also set standing instructions with your bank to transfer some amount of money to some other account of yours.
Cash is king
As said, according to me, having a certain amount of money in bank or any other cash related method should be your first priority. This is your emergency fund. Your 3am medical emergency money. Your own personal insurance
This gives you a great financial cushion, the financial base, the confidence, that even if you lose everything, you have something somewhere to survive.
This fund is available to you RIGHT AWAY. The only thing that can affect this fund’s availability is your bank going out of business. Trust me, banks going out of business doesn’t happen easily, and never overnight. As long as you’re a little watchful, you can always move your funds to another bank, in case your bank is in trouble.
Decide any amount which you like, and vehemently save to reach this goal. Only when you have made this emergency fund available, should you start investing in anything else.
Start investing early
Sit with an investment advisor/expert, and plan your long term savings with them. They will charge you a yearly fee for the advice they’ll give or the investments they’ll make for you, but trust me, it’s worth it. I read somewhere that at the age of 25, even if you invest 5k INR a month in something like stocks, for 10 years, and then stop investing altogether, by the time you’re 65, you’ll be a millionaire just by your investment.
That’s how compounding works. You can invest in debt based plans (like PPF, PF - where you’re lending your money to the government, and government pays you interest for this favor), or equity based plans (where you’re investing in stock market) as per what suits you. I invest mostly in equity based plans, because the returns are better, and I am not involved in the interest business. Of course in equity plans there is a risk of losing money too, but I expect you to be smarter and not put all of your eggs in one basket. I can connect you with my investment advisor who has taught me all this and invests for me, if you like.
Keep your expenses low
You should ideally expense only 30 percent in your fixed expenses, 30 percent in your variable expenses, and the rest 40 percent should always go to savings and investments. Most of the “stuff” that you buy, you don’t really need it.
Here’s a simple test for you before you spend in buying stuff : will you be using this thing many times a day, or a week, or once a month, or once a year? If you’re not going to use it too often, and if you are living well without it so far, AND it’s not improving your life significantly, there are high chances that you don’t really need this stuff that you’re buying. If this thing that you’re buying out of your hobby, is just the 10-15% of your monthly income, it might not hurt to buy it. You decide your own number. For me, this is 5-10%. Anything higher than this, I either don’t buy it, or save money for it. Which brings me to my next point:
Spend big from your savings, not from credit
You need something which is out of your budget right now but will be very useful to you? Try as much as possible to save your way up until you can afford it, instead of taking loans or buying it on credit. It’s a psychological thing that when you buy with cash and not credit, your mind knows that it has given something away (the money) to receive this thing. With credits or loans, you get the stuff essentially for free at that moment. But when you have to pay for it, you do give something away without getting anything in return.
Avoid credit cards and loans
Unless you are sure you can use them very efficiently, avoid being in loans. According to me, when you take a loan, you trade in your freedom. For every loan you take, you give away some part of your freedom. Unless you can manage them really well, and can work with saving your way up for something, don’t take a loan or a credit. Bank may lure you with clever marketing, but that’s their job. Your job is to protect your own freedom, your own interest.
Generally when you buy something with cash (hard cash or money in account), your mind clearly sees the transaction happening.
You lose cash, and gain the thing that you bought. We’re wired to find this as normal.
With Credit Cards, this whole flow is disturbed. When you buy things with credit card, you don’t lose anything, but gain something.
When you pay the credit card, you’re just losing, and gaining nothing. This hurts, and hurts bad. Worst, if it’s EMIs.
Credit Cards will give you twice the limit than your salary, and it’s very easy to fall in the trap where you can never pay back the card, and are just paying the minimum amount, which is, by the way, JUST the interest to the bank, and NEVER reduces your principal amount.
It’s NOT a status symbol to own a Credit Card. Please don’t fall into this trap, none of the rewards that the credit cards offer are worth your stress and freedom.
Keep collecting important tax/financial documents
Your pay slips/salary slips are important. Keep collecting them at all costs. Keep checking if your employer is paying income tax on your behalf. In India, you can check Form-26AS to see how much tax has been paid on your behalf and who paid it. I have seen many startups deducting young engineer’s salaries to pay taxes (TDS – Tax Deduction at Source) and never paying it. These companies employ you as a consultant, not as an employee. And if you’re employed as a consultant, the responsibility of paying income tax, is on you. The company can only pay professional tax, which is paltry INR ~200 and get away with it. Unless you learn to read your contract, you’ll never know whether you’re employed as a Full Time Employee or as a Consultant. You can ask your company about it. Keep collecting your Form 16 A & B. Keep filing Income Tax Returns, and saving the documents showing that you have filed them. All of these documents will help you to prove that you have a good standing tax wise, which in-turn helps in many other things in life.
Avoid the home loan trap early on in your career
This is going to be a lengthy one. Once you start earning, saving and investing, you’ll start thinking about buying a home. Most of our societies are built like this, to put us under pressure towards making this decision.
You’ll naturally not have a bulk of cash to buy a home, so you’ll drift towards taking a home loan. Worst yet, people will give you arguments like these, in favor of getting a home on loan:
- But you do need a house, every one does. Look at Mr. Sharma’s son!
- You’re already paying rent, the EMIs will be a little bit extra.
- At the end of so many years, renting will get you nothing, while EMIs will give you a permanent roof on your head
- A house is a very good investment
And many more. Let’s look at these one by one and let me tell you why none of these hold any substantial ground:
- You may need a house, but not in your 20s or early career. You are better off investing this money for 10+ years and buy majority in cash and minority in loan, later on in like, once you’re in your mid 30s, because..
- EMIs are not just “little extra”, they’re at least twice the amount that you pay for rent generally. If you don’t believe me, head over to any online EMI calculation tool (like this one from HDFC) and look for yourself. The rent for a typical 2 bedroom house in Bangalore (my town), starts around 15k, depending on the area. While if you’re buying the same house, it may cost more than 60,00,000. And banks give you only 80% of this amount as loan (so 35,00,000). If you take a home loan for this amount, for 30 years, on a rate of interest of 8.5%, your EMI comes around 27,000, plus however you manage to pay the extra 15,00,000 is up to you. You can head over to the same tool and see this yourself. What you’ll also see is that you’re paying 61,00,000 in plain interest (I am not kidding), and your house will end up costing around 96,00,000 at the end of those 30 years. And guess what, until the 30 years pass, you don’t own the house, the bank does
- While renting, you may not own a house, but what you definitely own is your freedom. Freedom to move around in any area of a city, to any other city or state or country, wherever your career up-move takes you. But if you get yourself into a loan, just changing your current job, or the thought of an economic downturn will make your tummy churn.
- Looking at the current trends, I am not sure if a house is a very good investment. It will be good only if you spend x amount on the house, and are able to sell it for anything more than this x. The return on the house is very late (30 years, in case of such a loan), you pay a LOT of interest, and as we just saw, your house may end up costing more than 100,00,000 after 30 years. This is a lot of time, and we don’t know if prices are going to appreciate so much in the next 30 years, to cover for the interest+principal amount. Heck, we don’t know if we’ll even be alive after 30 years.
Even if you buy a house in the very new suburbs, in the hope that the prices will appreciate as the area develops, then you’ll pay for this by having a long commute, lack of community and access to main markets.
You may find a very good deal and get lucky, for example, you bought a house in an established suburban area, and the government announces a metro rail station near your house, appreciating the house’s value very quickly. In this case this is a good investment, but a lot still depends on luck, and you’re likely to not be this lucky majority of the time.
You can also argue that you can negotiate with the bank to not make the tenure of repayment so long. Well, good luck with that.
I am not saying that you shouldn’t buy a house at all. If you’re into it, definitely buy one, but definitely not into your early 20s, by taking a huge loan.
Live a frugal life for some time, make some wealth, save something, and buy a house towards your mid-30s.
Around this time, you may have ample amount of cash to invest, lowering down your loan amount, your tenure, thus your EMIs. Even then, whatever EMIs you get, your salary will be much better to be not greatly affected by it. So basically, it’s Spend big from your savings, not from credit all over again.
I hope the above lessons will be able to help you not make the mistakes that I made. I’ll keep adding more to this list as I learn more. If you think I have missed adding something, please feel free to suggest.