Turning 30? Here’s how to manage your personal finances to get rich

Managing your personal finances must be one of life’s top priorities. When your finances are healthy, they can help you and your family live happier and more fulfilling lives.

If you are approaching or have already turned 30, you need to pay special attention to personal finances. The age of 30 is an optimal stage – neither too late nor too early – to start your financial planning. Any further delay can result in slow but steady collateral damage, depriving you of the high wealth-generating potential that your small but regular investments can yield.

Adhil Shetty, CEO of BankBazaar says, “When you’re in your 30s, a lot of factors work in your favor. You are young and relatively healthy. You probably have good risk tolerance and can have another 30 years of employment ahead of you. But the most important factor you have for yourself is time. With 30 more years of income generation, you have 360 ​​months to invest and 30 years of compound interest to take advantage of. All of these factors, when used optimally, can significantly impact your wealth-making journey.”

Here are some quick tips on how to approach your financial planning in your 30s.

1) Save more to invest: Savings are important. You should aim to save no less than 25% of your total monthly income. The higher the percentage, the better. Let’s say your monthly salary is Rs 40,000; Make sure a quarter of that or Rs 10,000 needs to be saved while keeping your spending to Rs 30,000. As salary increases, the same proportion of savings should continue unabated.

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2) Investment strategy: Don’t let your savings sit idle in your bank account. Normally you should expect annual inflation of 5% for life. To create wealth, you must put money in ways that will effectively beat it by a wide margin over the long run. Make a list of your financial goals and work to achieve them through investments. Below are the options you can consider for investing.

a. Invest in stock-focused tools: If you are young and have a good appetite for risk, you should consider investing in equity-related products. Make sure you are 80% invested in equity instruments. Currently it would mean Rs 8000 out of the Rs 10,000 saved. Investments in equity funds via a systematic route (SIP) are an ideal entry and continuation route. Add a 10% top-up that allows you to automatically invest 10% more after a year, and so on as salary increases.

With this strategy you will end up investing a total of Rs 15.3 lakh and the value of this will be a little over Rs 30 lakh by the time you reach 40 years of age. This has an assumed return of 15%. If you carry on until you retire at 60, the total value of your investments will stand at a whopping Rs 10.12 crore versus a total investment of Rs 1.6 crore. This is the power of compounding as the number of years spent in the market increases.

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b. Allocate 15% of your portfolio to debt: After you have invested 80% in equity instruments, you should have an exposure of 15% in debt instruments. You can invest in public provident funds (PPFs), your office provident funds, debt fund systems, and bank time deposits. All of these programs will help stabilize returns, if not fight inflation.

c. Invest 5% of your portfolio in gold: Gold as an investment offers you a strong protection against inflation. It is prudent to maintain no more than a 5% allocation to gold-related instruments such as gold ETFs and Gold Treasury Bonds (SGBs). Avoid buying physical gold in the form of jewelry or coins.

3) Secure yourself adequately: Purchase adequate traditional term life insurance with a minimum coverage of Rs 1 crore. For health insurance, you can first consider an insurance sum of at least Rs 10 lakh. Having adequate insurance coverage goes a long way in keeping your financial planning intact and not unnecessarily burdening your pockets with unexpected medical expenses.

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4) Create emergency corpus: Having an emergency fund readily available, no less than 12 times your monthly income, should be a priority. You can either keep this money in your savings account or invest it in a liquid mutual fund. You can use your annual bonuses, bonuses, or other compensation, apart from your income, to build up a sizeable emergency fund. This comes in handy for bridging the rough waves at times of sudden personal emergencies.

5) Delay real estate purchase: If you already have a home—whether it’s your parents’ home, accommodation provided by your employer, or a rented home—it’s recommended that you refrain from buying property on a loan basis for at least a decade, if not more. Carry on with what you have. It’s for the simple reason that buying a home with nearly two decades of debt to pay back is the biggest purchase of a person’s life. And in doing so, you may be missing out on an opportunity to invest in high-yield growth vehicles, as the home loan EMI takes away a significant chunk of your savings.

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