Aging is a very normal process in anyone’s life. We all will age with time. However, the distinguishing point will be how well few people plan their transition into the critical age group of 30. Yes, it is a hyper critical age group in our life and will generally determine how our life, retirement plans, and financial plans would pan out. Therefore, turning 30 on most occasions turns out to be a wakeup call for many of us primarily because of the following reasons:
- We either get married and plan our first baby
- We are already married and have our first baby
- We transition into a critical phase of our career
Here are seven vital financial decisions that you would need to take before you hit 30:
Please pay cognizance to the all-important word ‘compounding’
Please note that compounding becomes the most crucial concept that you will need to understand thoroughly once you hit 30. Let us consider an instance of Raj and Rahul. Raj is 25 years old and works for HUL in Mumbai as a Senior Manager, Brand Marketing. He draws a monthly salary of Rs70000. He started investing Rs.10000 every year when he was 25 and stopped investing once he hit 35. However, Raj does not withdraw his investment at any point in time. Rahul is 35 years old and works as an Assistant Manager, VAS Marketing for Idea Cellular in Mumbai and draws a monthly salary of Rs.51000. Like Raj, he started investing Rs10000 every year when he was 35. However, Rahul continued this until he retired at 65.
Do you know who will have a higher quantum of money when they both turn 65? Any guesses? Well, it may sound crazy and weird, but it is Raj who wins this competition
Raj has clearly benefitted from the fact that his money started compounding at a very early stage of his life and started earning interest. This interest generated more interest, which started compounding regularly, building a strong pool of money for Raj during his retirement. This, one has to agree, is the real and indisputable power of compounding.
That said friends, please do remember that the best time to start your financial planning is now. It is never too late to start planning your finances.
Buying or renting a house – take a well-calculated call
Once you enter your 30s, please take a well-calculated decision of buying a home or staying in rented premises. Make sure that you have weighed the advantages and disadvantages of buying a house and staying in rented premises well before you take your final decision. This is because buying a house will be the biggest investment decision of your life.
Life and health insurance
Plan your life insurance, preferably a good term insurance plan. It will prove to be highly useful when you retire. Moreover, health insurance becomes vital as well, given the stress levels and work pressure in today’s professional world. Further, health and life insurance provide you with tax benefits under the Sec 80D and 80C of the Income Tax Act.
Have an emergency fund in place
Ensure that you apportion funds equal to 4-6 months of all your mandatory and other fixed payments as emergency fund and don’t touch this fund. Use it only in case of an emergency. Now, upgrading your Nokia Lumia smartphone to iPhone 6 is definitely not an emergency.
Get your career choice bang on since there is no looking back once you hit 30
You are the best at understanding what you want from your life. Please ensure that you make wise and well-calculated moves once you hit the 30s since you will not have too many comeback chances. Even if you get a chance to comeback, remember the compounding concept that we spoke about earlier. It is good to follow your passion, but it is better to have a balanced career option that takes care of you, your wife, your children, monthly bills, and leaves aside enough money, which you can invest towards your retirement. Ensure that you improve your educational qualifications and certifications to increase your income. Invest in yourself now for a better tomorrow. It always pays to plan for your retirement now than leave it for later. If you fail to do this despite hitting the 30s, then you will end up earning and fending for yourself and your wife at an age where all your other friends and colleagues will be enjoying their retired life.
Clear all your debts
It is needless to say that monthly credit card payments, loan instalments, and other EMIs all simply add up to your financial woes. They simply will not allow you to generate a corpus for savings and investment. Thus, keep things simple, clear all your debts and become debt free as soon as possible, since that accelerates your investments and financial planning process. See if you can pre-close your loans. It would be of great help in the long run.
Have plans for children’s education and marriage
Ensure that you plan to set aside funds for your children’s school and college education now. Inflation will catch up with you sometime in future if you don’t plan now. It will hit you badly. Likewise, have plans for your children’s marriage by investing in gold, FDs, and other plans. All of this will surely pay rich dividends just when you need them the most.
All one needs to remember is that every big tree was once a seed. My grandfather told me the story of a young boy, 13 years old, who planted a guava seed. The boy watered the seed at regular periods and saw it grow into a sapling. His happiness knew no bounds and he started taking more care of the sapling by watering it, used fertilisers, kept the insects and birds away from the sapling, and the result was a huge guava tree in front of him. He noted that as he grew older, the tree too grew with him. Today, he feels so happy when he sees his grandchildren climb up the tree to pluck and eat tasty sweet guavas. He tells them how their father too ate guavas on that tree.
The moral of the story was that my grandfather wanted me to understand the importance of investing money and showing patience to allow it to grow, since it will not grow overnight. Thus, all of you who have hit the 30s please invest today for a better tomorrow. Invest in a SIP for your children when they are very young, so that you could use it when they attend school/college or for their marriage. Do not hesitate in meeting a professional financial planner as they are the best people after you to help you plan your future.
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.