5 Financial priorities to achieve before you turn 30

When you have a sound financial plan in place for the future, every rupee you saved automatically gets assigned a purpose. In case something untoward were to happen or alternatively you face an emergency situation, you are better equipped to face it.

Aug 13, 2019 10:08 IST India Infoline News Service

Financial Planning
Setting financial proprieties, managing money and budgeting is one of the most important skills one should learn and one of the most underrated too. Finances can be deceptively tricky to manage. However, if you invest early on, time is on your side, and the money you save today has several decades to grow. It is no surprise that the earlier one starts financial planning, the lesser the burden on saving each month will be. This is possible due to the power of compounding, a very simple yet powerful concept in finance. Compounding is the process whereby the value of an investment increases because the earnings on an investment (capital gains + interest income) increase with the passage of time.

When you are in your twenties, you have at least a good 30 to 40 years before inching towards retirement. With that much time to save and invest money, you have the magic of compounding interest working by your side. In the absence of a clear financial framework, you will find it difficult to plan for your future. When you have a sound financial plan in place for the future, every rupee you saved automatically gets assigned a purpose. In case something untoward were to happen or alternatively you face an emergency situation, you are better equipped to face it.

Given below are 5 financial goals that you should fulfill before the age of 30

Insure yourself: It is always smart to insure yourself and your family when you are young.  Life is really unpredictable and so, make sure that you have a term insurance cover in your 30s because the earlier you take a life insurance policy, the lesser premium you have to pay. Buy a term insurance plan that is at least 30-35 times your present day earning. Along with life, make your and your family’s health a priority too. Buy a good health insurance for you and your family. Medical emergencies are something we can never predict. However, these are expenses we cannot avoid and they tend to balloon which will be disastrous for your financial plans. There is a reason why the saying goes “Health is wealth”. An added advantage is that health and life insurance will also help you to save taxes under 80D and 80 C respectively.

One common financial mistake people make in this regard is to confuse insurance with investment. Insurance is taken as a protection against unforeseen circumstances or events. Investment is done with the sole motive of wealth generation or fulfilling certain financial goals. Make it a point not to mix these two concepts and financial goals.

Pay off your debts: Generally, when you are in your 20s, you tend to have very few financial responsibilities. Use this as an opportunity to tackle and pay-off your debt. The earlier you repay your debt, the faster you can utilize more of your funds towards productive purposes like investing. Remember, bad debt is sacrificing your future day needs for your present day desires. If you have multiple loans like student loans, EMIs, etc., it makes better sense to repay the loans with the highest interest rates first. Try to allocate any extra funds that you may have towards tackling this loan so that you are done with it sooner than later.

Start planning for your retirement: It seems odd, right? To start planning for something that is so far into the horizon. The trick is to plan and invest towards your long-term goals at the earliest. This is because compounding works better in the long term. Thus, a smaller amount of investment will reap huge returns if you invest consistently over the next 10-20 years. The next question will be, how should you plan for retirement? Retirement planning depends on your age, risk appetite, salary, etc. The first step is calculating how much you would require after your retirement. This depends on your current living expenses, and how much of your current monthly expenses will be there even after you retire. Inflate that and you will have your monthly expenses post retirement. Ideally you should have enough corpus to last the period of retirement especially with inflation eating away at your expenses. Once you arrive at the corpus, see how much your existing savings will help meet that corpus. There are a number of retirement savings schemes available like Public Provident Fund (PPF), Employee Provident Fund (EPF), National Pension System (NPS), etc. where investors can invest a part of their monthly earnings into a fund during the course of their employment, and withdraw the amount accumulated in the fund on retirement.

Have an emergency fund: Life can be very unpredictable and there are very few things we can be prepared for. However, financial contingencies are something that you can prepare for well in advance. Always keep an emergency fund with expenses for 3-6 months aside. Do not dip into this fund unless you are faced with a real emergency. While an emergency fund won’t solve all your money problems, it’s a great start to getting your finances headed in the right direction. Emergencies can include, losing your job, unexpected medical emergency which may not be covered by your insurance, etc.

Begin investing towards financial goals: Investments should always be linked to your financial goals. There are two basic kinds of financial goals i.e. short -term and long-term. Prioritize investing for the long-term as it gives more time for money to work for you. Higher the risk associated with an investment, longer should be the time horizon linked to that investment. For example, goals like child’s education and wealth creation are long term ones, so linking them to equity mutual funds will be sensible and fruitful. For short term goals like taking a vacation abroad or buying a car, investment in debt funds will be ideal. While investing in mutual funds invest through the SIP (Systematic Investment Program) route in a bid to circumvent volatility. Start small and build slowly as and when you have more funds.

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