As we grow older, our responsibilities increase – we might have to take up a home loans, we are in a position where we have more dependents and need to start planning towards our retirements. The decade of 30’s is important time frame to get serious about some financial decisions in life. Life is no longer a rehearsal where you might win a second chance. It starts getting serious.
Here is a quick list of steps that we might want to consider before you hit 40 to set a solid financial platform for you in the later years.
Reserve for yourself an emergency fund
The logic behind an emergency savings fund is this. No matter how smart or clever you be, one could never get spared from claws of destiny. It could so happen that you fall sick or lose your job. You need to have a sizeable bank balance to meet your expenses during this sour period when you may not be at work or recovering from a sickness. Such a contingency fund could range anywhere from at-least 12 to 24 months of your regular cash flows. This becomes important especially in your 30’s and 40’s when your expenses could be at your peak.
So start reserving portion of earning in the bank or the liquid funds to meet these expenses. An emergency cushion is insuring yourself against this unforeseen debt otherwise.
Get hang of your debt
Buying home or investing in real estate has been the most common investment class across all working class in India. Most of us in 30’s in India have the home loan on the liability side of our balance sheet. This could be a better form of debt considering the asset appreciation that Indian real estate has given at-least until now. If not returns, the emotional satisfaction in owning a house is significantly high. Fingers crossed, we could still call this good debt in India.
Certain other forms of debt fall into the negative category – Credit card might fall into this category or even the money borrowed that goes into buying depreciating assets – be it a car or a air conditioner or any asset for our lifestyle comfort. If you have a credit card, make sure you handle it carefully as interest rates here can go up to and over 30% per annum.
You might want to consider prepaying your home loan or clearing off the any other debt quickly. Whatever said and done, don’t stretch beyond your comfort zones. This is the time when you have other expenses kicking in as well, kid’s education, regular vacation, lifestyle expenses and so on. So, don’t burden yourself with a heavy home loan and allow all your basic comforts suffer.
Becoming debt free by 40 with all your comforts met is something definitely good to have.
Get yourself insurance
All of you would love to have a healthy life but life is full of surprises and at times they may not be pleasant. In such a situation be it a accident, hospitalization or any other illness, you might encounter a large financial outgo. However, an health or an accident insurance can potentially save you from such a catastrophe. It is always worth spending a few thousands every year to protect yourself from such unforeseen liabilities.
Similarly life insurance policies offers protection against financial losses resulting from the insured individual’s death. If you are the sole breadwinner of the family, you should insure yourself first. In fact a pure term insurance comes with an assured sum to your nominee in the untimely event of your death.
The earlier you take an insurance, lower is the premium and the Maths works out well in our favour. So start early, pay less and remember to renew it every time for you and your family.
Teach yourself investing basics
You don’t need to become a financial wizard, but knowing basics around mutual funds, stock market and various debt instruments will help you make the right decisions for your own long-term savings and investments.
Many of us do not have time to self- manage our investments. The right advisors are not always available at our door step. For most individual investors, mutual funds provide the easiest way of maintaining the right mix of investments. Like how the timing of the market is quite difficult, we could never know the bottoms or tops of the market, which also difficult. Systematic investment plans are the sure shot way to weed out any such timing related challenges during investing.
Also don’t fail to assess your risk profile and return requirement. An overdose of equity can make your portfolio risky. An overdose of fixed income can mean you earn just enough to beat inflation
CAMS has a variety of information available in its website and also share excellent inputs on Investments and Savings in our Facebook Page. Like us on https://www.facebook.com/CAMSRTA . To watch informative videos visit https://www.facebook.com/CAMSRTA/videos .