Whether it’s your retirement, marriage or child’s birth, financial planning is required at every stage of life. As soon as you start earning, you must inculcate the habit of financial planning to ensure achievement of every life goal. When you reach your 30s, your financial responsibilities increase and financial planning becomes even more crucial. However, mere savings won’t suffice, you’d need to allocate your savings for specific life goals.
Here are some financial tips for those in their 30s, which would help in setting their finances on track.
Plan and Invest for your child - Responsibility of a child usually comes in your 30s. From the birth of your child to his/her higher education and marriage, every step requires a good amount of corpus. With rising costs of higher education and living expenses, taking an education loan would seem eminent. However, this would burden your child from the beginning of his/her career and hardly leave any room for own savings and investments.
If you start investing right from the time your child is born, you have around 18 years to accumulate the corpus for your child’s education. Therefore, it would be advisable to invest in equity mutual funds, since these have consistently beaten the inflation costs and provided higher returns, which are adequate to build a corpus for your child. Ensure you choose direct mutual funds as they deliver higher returns than regular plans.
Maintain an emergency fund- Emergency fund hedges you and assists in tackling financial exigencies such as job loss or severe illness. Ideally, your emergency fund should amount to at least 3-6 times your monthly expenses. Even if you have been building an emergency fund, make sure you don’t use it for any other purpose except emergencies. Moreover, as your age increases, your expenses also rise due to family expansion and increased responsibilities. Therefore, your emergency fund must also proportionately increase with your rising expenses.
With interest rates up to 7.25% being offered, it’s advisable to keep your emergency funds in high interest yielding savings accounts, since these also provide you with highest form of liquidity.
Ensure purchase of an adequate insurance cover- An adequate health and term insurance ensures that you as well as your family are adequately covered in case of medical emergencies or your untimely demise. When you reach your 30s, make sure you have a pure term insurance plan, whose cover should amount to at least 15 times your annual income.
Also, buy health insurance so that the rising medical costs do not drain away all your money in case of medical emergencies. Make sure you do not remain dependent on your employer’s health policy as that would be valid only until you stay with that company. If you are married, you can opt for a family floater health insurance and get your children, if any, included in it. A top up medical policy would be helpful too, as it covers your medical costs in case of disability or accidents and is cheaper than regular health plans involving such services. Additionally, you can avail tax benefits from both term and health insurance, under section 80C and 80D respectively.
Start investing for your retirement- Most individuals commit this mistake of delaying their retirement plans to a later stage, thinking they still have at least 25-30 years of employment. This leads to inadequate retirement corpus being created, which isn’t sufficient to match your living and medical expenses as per your life expectancy.
Therefore, it becomes important to carefully plan for an adequate retirement corpus, as per your current age, current and expected living and medical expenses, keeping in mind the cost of inflation as well. Since you have about 20-30 years till retirement, investment in equities will enable you to accumulate desired amount of corpus. Again, choose direct plans only for your mutual fund investments.
Use credit cards to build credit history- If you haven’t used credit cards yet, you must start using them in your 30s. Credit cards can help you build a good credit history which would ultimately fetch you a high credit score. Lenders generally prefer lending to borrowers with good credit score, since it shows that they have been handling their expenses in a disciplined manner. No one knows when you might need to avail a loan in future due to any reason. May be you would require a loan to buy a car, your dream house or for any unexpected event in life. To avail a cheaper loan and better service terms, you must build a favorable credit history by using credit cards.
Naveen Kukreja – CEO& Co-founder, Paisabazaar.com
