3 Financial Priorities when you turn 35

Ideally, for short term goals which need to be achieved in the span of 1 to 4 years, the instrument for investments must be more of debt based like liquid funds, short term debt funds, recurring deposits, etc.

Dec 05, 2016 11:12 IST www.comparepolicy.com Harjot Singh Narula |

Turning 35 is reaching a mature age of your lifetime. Decisions made at this age juncture, especially financial decisions will impact the rest of your life and the life of your loved ones too. With increasing responsibilities in mid 30’s, it becomes all the more imperative for you to make sound and prudent financial decisions by setting pecuniary priorities.
 
The most important 3 financial priorities when you turn 35 are:
 
1.    Set your Financial Goals
 
The first and foremost priority should be to set and define your financial goals. Setting your goals can be categorized into short term goals (like buying a car), medium term goals (like buying your own house or financing your child’s education) and long term goals (like planning for retirement,etc). It is important to write down your financial goals in detail to determine “how much” and for “how long” you need to invest. While defining your future financial objectives, it is important to account for inflation as well. A car worth Rs 5 Lakhs which you might be thinking to buy today may cost the same 5 years down the line due to inflation.
  • Now to attain or achieve the set financial categorized goals, it is important to choose the appropriate financial instruments. Selection of financial instrument should be based on time horizon to achieve the goal, return on investment, liquidity and tax rebate for your invested money.
  • Ideally, for short term goals which need to be achieved in the span of 1 to 4 years, the instrument for investments must be more of debt based like liquid funds, short term debt funds, recurring deposits, etc.
  • Medium term goals which need to be achieved in the span of 4 to 7 years may comprise of financial instruments having a mixed blend of debt and equity like Balanced funds, ELSS, etc.
Long term goals which need to be achieved in the span of more than 7 years may comprise of financial instruments inclined more towards equity and marginal proportion towards debt instrument like equity funds, PPF, NPS, Mutual Funds, etc. For the long run, equity based instruments give the highest returns as per historical data analysis.
 
Let us have a brief look at the various financial instruments suiting your different goals.
Type of Instruments Rate of Return
(approx.)
Liquidity Tax Rebate Goal Term
Equity Fund 12.5% Withdrawal at your discretion No Section 80C Deduction Long Term
Balanced/Debt Fund 8-9% Withdrawal at your discretion No Section 80C Deduction Short to medium term
Fixed Deposits 7.5 - 8% Depends on holding term Section 80C deduction on 5 year tax saving FD’s. Interest income is taxable as per existing law. Short Term
PPF - Public Provident Fund 8.10% Lock in period for 15 years, but partial withdrawal allowed after 7 years Section 80C deduction and tax free income Long Term
NPS - National Pension Scheme 9.47% Withdrawal or pension at 60 years Sec 80C deduction and 40% of maturity value is tax exempted Long Term
ELSS - Equity Linked Saving Scheme 13.11% 3 years lock in period Section 80C deduction and tax free income Medium/Long Term
 
2. Getting Insured
An Insurance policy safeguards you and your family against the financial loss of your insured event. There are various types of insurance policies like Life Insurance, Health Insurance, Critical Illness, etc. At the age of 35, when you are in full spree of setting the foundation for your bright future, any unfortunate event like death, disability, accident or illness may hinder your future goals and objectives. It is important to safeguard yourself against such exigencies as you move forward towards attaining the goals of your life. You should have adequate amount under following insurance policies:
 
Life Insurance
We all have insured our vehicles, but have we insured our life? There are various types of life insurance policies which offer you pure risk protection or risk protection plus returns based on your requirements. Primarily, the basic objective of life insurance policy should be to cover the risk associated with your life and not to offer you returns.
 
The pure protection plans known as a Term Plan should be a “must have” proposition when you turn 35. There are financial obligations lined up, loans and debts to be repaid, taking care of dependents, etc. Your untimely demise may prove a financial and emotional disaster for your loved ones. It is important to own a term plan with the appropriate sum assured. Term plans are the most cost effective life insurance policies which offer you death benefit only where as other life insurance plans which offer you life cover plus return, comes at a higher premium price. After buying a term plan, you may opt for market linked insurance plans or money back plans or traditional endowment plans as per our need and requirement.
 
Health Insurance
With rising medical costs, having a health insurance with optimum sum insured is the most important priority. Any fatal disease or unexpected illness may churn your existing savings and disturb your financial set up completely by way of treatment costs. Paying huge hospital bills have made many people liquidate their assets and reserves. Health insurance plans safeguard you from gigantic hospital bills, covers you against pre and post hospitalization expenses, day care procedure expenses, allow domiciliary treatments, organ donor expenses, etc. Don’t simply rely on employer based health insurance schemes as it is functional till the time you are employed with your company. Once you move on, the benefits will also stop under employer based health schemes. You may opt for Top up or Super Top up Plans to enhance your existing health insurance coverage.
 
Other Insurance Covers
You may also opt for stand alone critical illness plans which will offer you lump sum benefits in case you are being diagnosed with any of the specified illnesses like cancer, heart attack, paralysis,etc. Also, you may opt for Personal Accident Cover which will again offer you lump sum benefit in case of an accident.
 
3. Maintain an Emergency Fund
We generally look at a macro level of life and tend to forget the micro exigencies which could happen to us like losing a job due to any reason, financial support needed by a family member, medical eventuality, etc. Another major priority is to set up an Emergency Fund. The emergency fund quantum may vary from person to person. Ideally, the reserve fund must be robust enough to accommodate 4 to 6 months household expenses plus reserve for paying EMI’s or insurance premium for 4 to 6 months time frame. People generally rely on their credit cards in the event of unpredicted financial exigencies. Credit cards are only useful to carry over credit for 1 or 2 months, beyond that it will prove to be another debt for you.
 
Conclusion:
It is important to take every financial step wisely by fulfilling the above mentioned priorities in your mid 30’s. This is the best period of your career, personal life and a stepping stone for your future future. Analyze your outstanding financial goals and objectives in time for a better tomorrow. Spend your hard earned income prudently to attain the objectives of your life and enjoy the wisdom and fun gained by reaching the remarkable number 35 in your life.
 
The author, Harjot Singh Narula is Founder & CEO of  www.comparepolicy.com.

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