An average early thirty something Indian is most likely settling into their career, getting accustomed to working lifestyle, learning new things, and paying off some earlier liabilities (if any) while the ones in their late thirties are most likely gauging their way through financial independence and looking at snowballing responsibilities and liabilities (both in terms of family and finance). Usually 30s is marked by peak earning years, so at this stage you should take steps that can ensure a stress-free financial future for you and your family. Take a look at a few such steps:
Figure Out Your Financial Goals
Setting your financial goals will give you a fair idea about how much money you need to save and invest to achieve them. The next step would be prioritising your goals as per your family needs and accordingly set a timeline. Set aside money from your income regularly for the assigned investments that will help you in achieving your financial objectives like buying a house, buying a car, children’s education, marriages and of course your own retirement effectively.
Don’t Be A Spendthrift
It’s better to have a control on your expenses. You can do this by planning your monthly budget and sticking to it as much as possible. This way you can cut down your unnecessary expenses and shift the saved money towards investments. Also, it is better to not keep the money only in saving mode, rather make your money work through inflation-beating investments, so that it can grow with time.
Insure Yourself And Your Family
Your insurance planning should ideally begin as you begin earning as it will financially protect you and your family in times of eventualities like death and disease. Do not buy insurance with a tax saving motive, but choose a cover that offers appropriate coverage against future financial risks. It would be wise to go for a term insurance with a sum insured value of at least 10-15 times of your current annual salary. In case of your sudden demise, your family and kids will be taken care of for their future needs. Given the increasing rates of medical treatment, it is also useful to have health insurance policy. With these two policies, any eventuality could be adequately taken care of without burning a big hole in your pocket. Moreover, starting these policies early is beneficial as your premium payment would be less. As you grow older and take policies later, your premium amount will scale up substantially.
Invest In Equity Related Instruments
Being in the 30s has many benefits – you have time by your side and you may be open to taking risks. Decide how much you need to invest on a monthly basis after factoring in the inflation. Also, it is advisable to focus more on equity-related investment instruments like Equity Mutual Funds, which not only offer inflation-beating returns but also contribute towards wealth creation. However, do consider your risk appetite before investing in market-linked mutual funds. Diversify and have a healthy mix of one or two diversified equity schemes, a large-cap equity scheme, one or two sectoral funds (with lesser allocation) and a small or a mid-cap equity scheme. However, while doing so, do remember that patience, regularity and discipline with your investment is the key to a successful financial plan.
Plan Your Taxes
If you plan your taxes well, you not only reduce your tax outgo but also contribute towards accumulating wealth. Section 80C of the Income Tax Act offers rebates for investing in eligible instruments for amount upto Rs. 1.5 lakh per annum. To save taxes, you can invest in instruments such as Public Provident Fund (PPF), Insurance and ELSS (Equity Linked Savings Scheme). Moreover, you could also show your insurance premiums paid per year for tax computation. While PPF provides tax rebate, it returns may not be good enough to beat inflation. If you are open to taking risk and want good returns, consider investing in equity-oriented tax saving options such as ELSS. Since, you have a long horizon for investments, it is advisable to distribute your tax investments in debt as well as equity for a healthy and high return oriented tax planning. Such a strategy will help not only in saving taxes but also generate considerably higher wealth for future needs.
Besides the above mentioned points, you should also build an emergency fund that can help you deal with unforeseen events like job loss, medical emergency etc. Choose an investment option from which money can be withdrawn easily.
The writer is CEO, BankBazaar.com