Financial planning when in 30s

If you have started to feel guilty about the unnecessary things you have bought in the last decade and you are planning to clean up your financial misdeeds, we know you have hit 30. Your responsibilities must have increased manifolds and you are looking for ways to secure finances for yourself and your dependents.

Fret not, if you are still juggling between your study loans and mortgage, as you still have time on your side, and starting early will only make your life smoother going forward. Here’s a list of things for the wiser and older you to bring financial stability and build wealth.

 Have a Budget in place: Your income must have increased and your needs must have changed compared to your 20s, and if you have learnt your lessons well from the last decade, you know a Budget is a must to keep spending in control.

Indulging in impulsive shopping and compromising on savings or delaying on loan repayments are some habits you have to get rid of to start with. The easiest way to stay away from committing a financial mistake is by chalking out a Budget and sticking to it. You might have to re-allocate your funds from time to time to suit your requirements, as your goals and needs might change in future.

 Retirement fund: You might be of the opinion that it’s too early to think of retirement, but we say there’s no better time than now. The more time you give your investment to grow, the easier it gets to reach your retirement goals. For example, if you are 30 now and invest Rs 1 lakh in a mutual fund growing at 15% annually, you get Rs 16 lakh when you are 50.

But if you make the same investment at 40, to be redeemed when you are 50, your returns would be Rs 4 lakh. Also, at this age, your risk appetite is higher and you can opt for an aggressive portfolio with investment in stocks and equities consisting small and mid-cap schemes. 

When you set financial goals for your retirement, do keep in mind the impact of inflation on the corpus you build. For example, if your current expense is Rs 40,000, your expense after 30 years would be Rs 28,45,700, if the average inflation rate is assumed to be 7%. So choose your investment instruments carefully.

 Contingency fund: If you haven’t done it in your 20s, you must do it now. Save up six to eight months-worth of your expenditure to meet your needs at the time of an emergency. You don’t want to be delaying your EMI payments or indulging in unnecessary loans in order to tackle basic financial needs in case of unforeseen circumstances such as job loss.

 Diversification of funds: It’s important that you diversify your funds to ensure you strike the right balance between high returns and security. Stocks and equity mutual funds are good choices for the core of your portfolio, as they fetch high returns. 

Real estate is another great avenue for investment, which won’t just ensure high returns, beating inflation, but also provide you with tax benefits if you take a home loan.

However, every investment has a goal associated with it. For short- and medium-term goals, you must maintain funds in liquid investments, such as recurring deposit. Also, with time, you have to keep re-allocating your funds to suit the changing needs and risk appetite.

 Insurance covers: Most big events such as marriage, having kids and buying of a house take place during this decade and you might want to reassess your insurance investment and revise them to suit your current needs. It is a must to ensure financial security for your dependents in case of your absence in future.

If your needs haven’t changed much from the last decade, you must re-buy policies to make sure you are getting the best rates.

It’s never too early or late to start investment. Smart planning can help you sail through. So, chalk out a plan and find the right investment instruments to get there.

You can always approach financial experts to know about the best products available in the market to suit your needs and risk appetite.

(The writer is CEO at BankBazaar)