The financial decisions that are made during this decade (in your 30s), have a big impact on how the rest of your financial life will be. More so because, in the 30s, you have the benefit of time that an older person does not. You can use the time to your advantage if you play your financial cards right in this decade.
So here are few points to consider if you are somewhere between your 30s and 40s.
Upgrade/Adjust Insurance policies: As simple as this may sound, it is critical. Find out what the right life insurance cover is for you and then have it in place as soon as possible. Don't just buy random covers of Rs 5-10 lakh through traditional insurance plans. Stick to term plans and calculate the right cover. Do not just depend on your employer for health coverage. Buy a family floater for yourself too.
Buffer for Emergencies: Do you have funds set aside for at least six months' worth of expenses of your family? If not, try to do something about it. Try to maintain 3-6 months' worth of expenses. More if you are in a risky job-loss prone industry or are the sole earner of the family. Try to accumulate it gradually. And as your expenses grow, so should your emergency fund.
Time for Goal-based Investing: You have been randomly investing here and there to save taxes. The time for experimentation and goal-less investing is over. Fix your key life goals and begin investing separately for them. For example, buying a house in the next 10 years, a child's higher education in the next 14-15 years, etc. Then, find out answers to questions: i) How much money is needed for each goal? ii) When is the money needed? iii) What's the best investment instrument to reach the goals? iv) How much money is required each month for these goals and whether you have that kind of surplus or whether you need to prioritize your goals, revise timelines or costs according to your available resources? Setting clear goals will give direction to your investments. Take the help of a good investment advisor.
Start early for retirement: The 30s may still seem too early to save for retirement. And that too when you are saving some money compulsorily for your retirement via EPF/NPS contributions. But your PF alone will not be sufficient for retirement. You need to invest some amount in equity too to generate an inflation-beating return in the long run.
Increase your Contributions with your Income: Your income will increase every year. So should your savings. At least try to increase your savings contribution at a rate equal to your income growth. Also, any annual bonuses and allowances that you get shouldn't be spent away fully. Use some of it to give a booster shot to your savings for various goals.
Reduce loans: Fewer the number of loans, the better for most people. But some loans are to be taken, such as a home loan. So take it. Just don't go overboard with it. If you want to prepay the loan early, go for it. Just don't let this aggressive home loan prepayment compromise savings for other goals. Having credit card dues and personal loans are best avoided unless really important.
The decade between 30 and 40 is your best shot at building a solid foundation for the rest of your life. So don't mess it up.
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