By the time you turn 30 you are done experimenting with your life and splurging your money. The 30s is the time when you get a little serious about life and your finances. You enter a new phase of life where marriage, kids and a big house are on the cards, so its best that you plan and be prepared to make the most this phase of your life.
1. Create Financial Goals – Now that you are a bit older and wiser, you will appreciate and understand the importance of saving and investing your money. It is also the time for you to start planning for your future events and create financial goals. Goal based investing is much more effective than simply investing without one. When you have a goal then you know exactly how much money you will need to accumulate, how much time you have to achieve this goal and how much you will need to start saving now to achieve this goal. This will ensure you meet your target on time and that there are no shortfalls. Choose your goals
2. Stay ahead with Mutual funds – Mutual Funds are a great investment option for any long term and short goals. If you have found the one you want to spend the rest of your life with and marriage is on your mind, then it will help if you start putting away some money for it from now itself. If your marriage will be sponsored by your parents then you could use this money for a luxurious honeymoon. In short saving now will help you deal with some big expenses that are to come later.
3. Plan your Retirement Fund – It is ideal to start saving for your retirement from your 20s itself this to benefit from the power of compounding. However, if you didn’t fret not you still have enough time to build a huge Retirement Fund. Nobody expects you to start putting large sums for this goal. The whole purpose of starting early is that you be able to achieve your goal with small investments and your money has more and more time to grow. This will be your money working for you and not the other way round.
Here is an example of how starting early helps. Assume you manage to invest only 5K in Systematic Investment Plan (SIP) of an Equity Mutual Fund for 25 years, then with 15% return you can expect to accumulate a corpus of 1.64 crores for your retirement. This way you also have an option of retiring early.
4. Plan for your child’s higher education or marriage – Having kids bring in additional expense and new goals need to be added to your investment plan. Education sector sees an inflation of 10% and more every year so again it will be advisable to start investing early for your child’s higher education even if you have to start small. In the future you could also take an educational loan with your child as the principal borrower, this way your child can pay of his/her loan when they get a job. You could use the saved up money for their marriage instead or a big family vacation. You can plan anything if you have the money to spend on it.
5. Emergency Fund – Emergency Fund is a must have at any age. The purpose of this fund is to financially support you in case of loss of job, sickness, accident or any other emergency. This fund should be large enough to support your 6-8 months of living expenses. Suppose your 6 months’ living expense is 2 lakhs then you can start a SIP in a liquid mutual fund which is a short term debt fund, for an amount that will help you achieve your goal in 12-18 months. If you already have an emergency fund in place then it’s time to review your expenses and update your fund to match your current expenses.
6. Life and Medical Insurance are a must – We a partner and may be kids, you now have family members who are financially dependent on you. If you already haven’t then you should buy an insurance Term Plan policy to secure their future. You already might be covered by your company but it might not be large enough to support your family for the rest of their future.
Also, in India Medical industry has one of the highest inflation rate which increases the cost of your regular medical treatments. It is hence advisable to buy medical insurance for you and your family even if it is provided by your company. This is to ensure you all are covered even in case of loss of job.
7. Spend your bonus wisely – Apart from your salary you might receive performance bonus or variable pay; you could choose to invest all of it or at least some of it in Mutual Funds to support your financial goals.
1) Plan your future financial goals and start investing early even if you have to start small.
2) Personal Life and Medical Insurance are a must
3) Update your emergency fund
4) Don’t blow away your bonus