Turning 30 years just presses the panic button, as you know that 20’s are over. You are still earning and are married and some of you are blessed with kids also. This just underlines the need for financial planning which will carve your future finances. Here is how you will deal with financial planning which will place you in the most convenient position.
Early Financial planning
- You may think that you are quite young to save and invest. But, in fact, this is a perfect age to start saving for secured financial future. Inflation is your worst enemy who will eat up major chunk of your salary.
- Education is a highest rising cost, planning for the education of kids would be your major concern. Education costs are rising double as compared to rest of the wholesale inflation rate.
- Marriages are set in heaven, but spending is done by the parents mostly. So, you have to plan for this expenditure also.
- The key point to remember is that money need in the future should be discounted by a minimum of 6-8% inflation rate. You have to consider that at least 6-8% proportion of your future income and returns on the investment is going to be taken away by then prevailing inflation rate.
- So, try to estimate how much will be needed in future for marriage or education or both. This can be easily estimated by considering the current costs and adding up at least 10% over and above such costs.
- Always invest in any instrument which will not lock your money, when you need it most. So, if you are investing in PPF or Gold ETF etc. for securing kid’s education or marriage, it may not be worth it. Instead, try investing in equity and debt in 40:60 ratios depending upon your risk profile. Also, you need to maintain a flexible budget, because the core investment demand may change due to unpredictable reasons.
- If you buy a term insurance plan in your 30’s, you may be able to get lower premiums for the reasonable sum assured. Also at such young age, there are very few medical checks. In case you are yet to opt for health insurance too, pre existing diseases may create a horror in later life. Early stage health insurance policy would ensure wider coverage.
- Anyway, you will be at major risk till you opt for term insurance policy. This is because, sudden emergencies would not be covered and financial liability will have to borne by the family. So, it’s better to go for an Insurance policy at least at 30 years of age. This will ensure wider span for protection and will also entail lower payouts in terms of premiums.
- Points to remember are that term insurance should cover you till minimum of 60 years of age.
PPF (Public Provident Fund)
- PPF is a long tenure investment which has E-E-E tax pattern. This means investment in PPF will allow a tax deduction under section 80C. Contribution to PPF during the lifetime till maturity is tax free. Also the amount received on maturity along with interest is also tax free and is declared exempt.
- However, the lock in period is 15 years, which means that you have to invest in PPF and forget about it for a long time till you actually enter 5th year. Partial withdrawal is allowed from year 5 subject to certain conditions.
- Even though PPF gives you an attractive interest rate, you have to be ready to depart with liquidity with respect to amount invested. Primarily PPF investment aims of retirement planning, hence you should determine how much amount you require post retirement. There are several PPF calculators available online, which will help you arrive at the amount to be invested. The Only point to remember is that you should be okay with lower liquidity during the PPF lifetime of 15 years.
- You may think that your spending is very less but at the last week, you may wonder, where does all money go? There is an answer to this question – Expense tracker. Expense tracker actually counts each and every paisa of your hard earned money. Just like your father did, remember? You will have to be answerable to this tool and it works wonders. Now you may understand that you are spending almost half of your salary on clothes alone. These expenses may be in very less amounts, but will add up to larger amounts.
- So what are you thinking? Download expense tracker or any money managing app, and be relaxed that every paisa will be counted there.
- Once a wise man said that nothing in life is certain except death and taxes. So keeping in mind both, you have to plan for both. Financial planning has to be carried out by consulting your financial advisor who will consider the tax aspect.
- However, you have to keep in mind that life is full of surprises and you can’t be sure that you will always get a happy surprise. Ideally, you should invest money for emergency in any Flexi Fixed Deposit account, which gives an FD rate of interest on balance and at the same time acts as your savings account. Money can be easily withdrawn from this account using your debit card, after which there will be no interest on this amount. Alternatively, you can also invest in Liquid Mutual funds which may provide you with better returns along with liquidity.
Must read: Financial Planning amid COVID-19
- This was just a summing up on important pointers. However you would feel the need to consult your financial advisor who will help you out in financial planning. Everyone has independent salary structures and different financial goals. So it is actually imperative on your part, to lay down every income and every expense (at least major) and your expectations from financial planning to your consultant. He would be able to advise exactly where to invest your money in. Financial Planning may include investment in Equity, Mutual Funds, Debt Funds, Insurance etc.
Turning 30 is not scary, however it is the age where you have to start your financial planning. This would be the perfect age to implement your financial planning phases. So do not delay any further and start to take control of your finances.
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.