Financial planning is relevant as well as vital for all the age groups. So, whether you hire a professional to do it for you or you prefer to do it yourself, we are giving you the tips for financial planning for every generation. This will either help you talk to your financial planner or will help you determine the investment strategy if you are going to do it yourselves.
The ones in their prime – young adults in the age group of 25-40 years
This is the young generation or generation X, which has started off the career recently or are just stepping up the ladders of their career. This is the phase, where these young individuals have started earning and there are new responsibilities like marriage, kids etc.
Budgeting includes estimated income and expenses which would include short term, long term and medium term financial decisions. It is always better to identify the nature (short, medium, long term) of expenses and adjust them against your income.
Start early to save
When you start saving at much early age, it grows up to be much bigger corpus in the long run. Compounding effect is the factor which will increase your corpus if there are more years to earn, even if rate of return is lower on such instruments.
Invest in equity and related instruments
Equity exposure yields superior returns over and above the average returns earned by conventional financial instruments like bank Fixed deposit etc. This is what makes equity investment attractive and hence at this age group, it is better to have equity exposure at about 60-70% to reap extraordinary returns.
Restructure your debt
If you are thinking of house purchase as a medium term or long term objective, then it is implied that you are going to borrow for the same. Clear and higher credit score will ensure smoother loan processing for such loans. Such credit score can be achieved through timely repayment of interest and principal.
Ideally, you should maintain 3 months cash balance as your cash buffer for any emergency situation. This emergency fund should be only released in case of sudden job cut or unforeseen event like accident, etc.
Invest in tax saving instruments in such a way that your tax deduction limit is exhausted, but not more than that. This will ensure optimal tax position and will also ensure that you have invested a minimum of the threshold.
The ones in the saturated phase –adults in the age group of 40-55 years
This age group is well settled and battling with rising expenditure but also with golden line of increasing salaries. This phase also features bigger decisions like house purchase, school and college expenditure etc.
If not done yet, you must take a life insurance for securing your family’s financial worries, even when you are not there. You should also take health insurance as your health care expenditure will escalate with the age and so will the premiums for the health insurance.
This is the most important long term goal which will be a medium term goal now. You should divert more and more resources towards retirement portfolio, once you meet with your necessary expenditure.
Get rid of loans
If you can afford, it is better to pay off the personal loans, which do not result in any asset creation or wealth building. This will enhance the liquidity position which may be very important at this age to meet with any unexpected situation.
Save first and then spend
This is the age where you should save more to accumulate more for your retirement portfolio or kid’s education portfolio.
For those in the higher tax brackets need to manage their tax positions well enough to manage exempt incomes and tax free incomes. This will enhance your effective rate of return on any investment.
The wise ones – Senior citizens in the age group above 55 years
The individuals in this age group have mostly completed their service or are about to complete their term. This is the period where individuals need post retirement income and will be dependent on such income stream as there is no employment income.
You should maintain a cash buffer for accommodating the contingent expenditure, especially health care expenses. This is very important as liquidity is important factor at this age.
Allocate your income stream appropriately
Your pension or annuity should be applied to appropriate purposes, like necessities (survival expenses). If you spend on unnecessary things, the you will be left with no money to spend on necessary things.
It is better to have a WILL for the possessions to distribute them to your loved ones. This will ensure appropriate distribution of your inheritance and the surviving spouse will be left to no one’s mercy, if you plan accordingly.
Financial Planning differs at every stage of life and hence is different for every generation. We have summed up important points for every such age group which will provide a basis for the financial management.
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