Turning 30 is more than just a milestone. You’re in the prime of you life, you’ve done a lot and have a lot left to do. You’re responsible, may have switched a couple of jobs, may have setup your own business and as an Indian chances are you’re married with a baby on the way. 30 is also a time to make some key financial decisions. Here are 6 simple steps to invest early, just around the time you turn 30, that can help you with a very fulfilling life and ensure perfect retirement planning.
1. Start investing, yesterday! – #compoundinterest
It’s always a good idea to invest early. However, one has to admit, the distractions in your 20s hardly afford you the luxury or the intent to invest. Let’s consider Person A who begins investing a 100 dollars at 25 and stops investing at 35. Now consider Person B who begins investing the same 100 dollars a year at 35 and continues to invest all the way to 60. Care to venture a guess as to who’s got more money by the time he/she is 60?
At an average rate of return of 14%, Person A will have more than twice the amount Person B does, even though he/she stopped investing at 35. The name of the game is compounding interest. Never underestimate the power of compounding and start investing today, even if it’s a really small, conservative amount. A good place to start is the PPF, 401k or Employee PF because of the tax benefits they offer. This really helps with retirement planning.
2. Get insured – #getinsured
All of us at some point have come across an AIG, LIC or other life insurance commercial, and all of us have at some point wondered if life insurance is really needed or worth it. By the time you’re 30, given that you may be married, it’s time you start thinking about your parents, your husband or wife, your kids and their education. If you’ve decided to invest early, life insurance hardly costs anything in the larger scheme of things. Just a few thousand rupees or a few hundred dollars a year can get you insured for amounts much larger. The earlier you start, the smaller your annual premium.
At 30, it’s its imperative you consider term insurance which offers maximum bang for the buck versus other hybrid insurance schemes that couple insurance cover with long term returns.
3. Decide if you’re a home owner or not – #buyhome #renthome
Buying a home, especially in metropolitan cities can be a pain. It is also possibly one of the largest single investment you’ll ever make. Many youngsters today are finding it more practical to continuously rent a home right till they retire since it offers them the advantage of remaining cash rich all their life without having to make a huge real estate investment. That money can be put to better use by setting up a hefty pension plan or just a fairly large Fixed Deposit.
While this choice is a very personal one, since most youngsters in India buy homes more for emotional reasons than sensible ones, at 30, its time you decide which side of the fence you’re on. A home loan in most cases is a win-win situation since, post repayment, you are left with an asset that’s far more valuable than the amount you paid.
4. Setup an emergency fund – #emergencymoney
It’s a good practice to assess your monthly living expense, multiply it by 6 and save that money in a separate 6 month emergency account. The most noted financial consultants across the globe including Suze Orman and Robert Kiyosaki suggest doing this since it keeps you prepared for surprise expenses. If you’ve got a home loan or another form of an EMI, make sure you include that in the 6 month fund. Conversely, it is considered a good practice to put aside 6 months of EMI prior to applying for any loan.
Note: The 6 month emergency fund is for emergencies, not a new fancy toy, spa session or holiday abroad.
5. Get out of bad debt and get into good debt – #debt
One is amazed that not many 30 year olds still know the difference between good debt and bad debt. Simply put, a good loan is one that leaves you richer at the end of the repayment period whereas bad debt is the opposite. Some loans, like a car loan are always bad debt since the asset, in this case the car, is a depreciating asset. Conversely, an intelligently planned home loan, after repayment, will leave you with an asset which is far more in value than the amount you paid back.
By the time you’re 30, its time to start consolidating your debt and ensuring you have a healthy mix of good and bad debt while constantly tying to reduce the bad. With the rampant availability of credit cards and loans in countries like India today, one is tempted to make unaffordable decisions. Get it right!
6. Invest in yourself – #holiday #socialize
Investing in yourself is a simple thing that a lot of people overlook and by the time they realise, they are in their mid forties with very little to look back at in life. Conditional on the fact that you’ve followed points 1 thru 5 and have implemented them successfully, you are well geared as far as retirement planning goes. So, its time to reward yourself every time you can afford to. Saving is important, but spending on yourself is equally important! Take that occasional holiday, buy that new car once every few years. Afford yourself some ‘you-time’ everyday. Whether its reading, yoga or just a walk in the park, make sure you’re 30s and 40s aren’t just about work and you’ll be a much happier person post retirement.
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