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Important Money Management Decisions at age 30
In this article, we would be discussing about how you can save and invest your money at an age of 30 years and what financial goals you should pursue.
INTRODUCTION
When a person turns 30, then it marks a start of an important phase where one needs to shoulder greater responsibilities. This is a period where a person needs to seriously take his responsibilities and get the finances in order. This is the time where one can make a financial plan for their goals and reap benefits in the future. At this age, you need to take some sensible decisions that will impact your long-term economic well-being.
Here we are sharing important recommendations and guidance on which you should follow around age 30:
1) Reducing Dependence on Parent’s Money
You need to take control of your future and establish your own path, and hence it is important to disengage from your parents financially. Start taking responsibility for your own financial decisions and expenses.
2) Repay your Debts
This is the age where you should repay all your debts. If you have an educational loan or any kind of personal loan, then try to repay it at the earliest. You should learn how to deal with debt and should only take loans when it is absolutely necessary for you. You need to pay interest on your debt and therefore you should avoid it. You should increase your EMIs and clear your debt as soon as possible.
3) Cutting down on your spending
Once you start earning a regular stream of income, the first thing you need to do is establish a plan for managing your finances. By making a budget and tracking your income and expenses, then you would be in a better position to understand where your money is going and how you can afford to make cuts.
4) Creating an Extra Income
You need multiple sources of income in today’s time to mitigate expenses. You need to figure out a way to start making more money or alternatively, devise a plan to cut down on your current costs instead of spending all of it. The extra income you generate can be used to payoff any debts you might have piled up, and by saving a little more towards your retirement can give a much needed boost to your finances.
5) Build an Emergency Fund
It is prudent to build an Emergency Fund now, if you have not build it yet. Putting aside money for unforeseen situations and events is very important and crucial so that you are always prepared to deal with what life has to offer. Build an emergency fund by building a corpus of funds which is enough to sustain your expenses for 6 months – 12 months. Invest 25% of this amount in your savings bank account and the rest 75% of the amount in money market mutual funds as it offers higher interest rate.
6) Buy an Adequate Insurance Policy
Having an adequate insurance policy is very essential to provide you with much needed financial security during times of uncertainity. You should buy a term life insurance plan which provides a cover which is at-least 10 times of your annual income. You should also take health insurance which adequately insures you. You can also save tax on your insurances as well.
With this, we move to the next topic:
HOW CAN YOU START FINANCIAL PLANNING AT THE AGE OF 30?
Wealth creation is one of the most important outcome of money management and how can you save your money.
Here, we look at few steps which you can take to fulfill your financial goals:
1) Set financial goals
You should avoid investing your hard-earned money in a haphazard and in an uninformed manner. Any investment should be done in the pursuit of a clearly defined objective.
For example:, if you are at 30 and your goal is to retire at 60 with Rs 1 crore as corpus, then you need to determine the monthly investment to be made in SIP to reach your financial goals.
Goal-less investing can have a disastrous impact on your portfolio and therefore, you should set clear goals and speak to a financial advisor if necessary.
The above table shows how much money you need to save on a monthly basis to reach retirement corpus of Rs 1 crore.
2) Protect your wealth
Life can sometimes make it tougher for you to reach towards your financial goals. Therefore, you should have an emergency fund and suitable insurance policies (Both life and health insurance policies) to cover yourself up.
3) Start investing
When it comes to financial planning, it is never too late to start investing. If you begin investing by now,then you have the necessary time and funds to achieve financial independence at the time of retirement. Moreover by making prudent investment decisions and using money smartly, you can become wealthier by letting your money do the work for you.
4) Start Planning for your Retirement
This is the right stage for you to plan for your retirement as you still have 30 years by your side to use the power of compounding.
Retirement planning is about getting off to a good start by investing on a consistent basis rather than putting it off for the next month. Starting investing for this goal as soon as possible would help you to build a bigger corpus.
5) Start diversifying your investments
It is not prudent to put all your eggs in one basket. You should try to diversify your investments in multiple asset classes to maximize your returns, minimize risk and maintaining liquidity of your portfolio. You should ensure that proper care must be taken to ensure that the optimum balance is maintained among your preferred asset classes.
For example; A portfolio with real estate investments would mean lacking liquidity during an emergency period, a gold heavy portfolio would be earning very low returns and an equity heavy portfolio would be volatile. Hence, it is prudent to come up with a suitable mix of asset classes.
6) Optimize your portfolio according to changing markets
After setting up your financial goals which, you can also track the markets on a regular basis to make use of the opportunities which the market offers. Therefore, it is necessary to revisit your investment plan periodically and taking corrective actions whenever necessary.
You should consult your investment adviser first before making any major changes in your portfolio.
You should remember that your 30s are an extremely critical time in your financial life because you have the benefit of time which an older person does not. Use it to your advantage and you can fulfill any financial goal you want.