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ULIP INSURANCE

Tips to Plan Your Finances in Your 30s

Karan Sharma Karan Sharma 15 February 2019
5.0 (2 votes)

Got promoted recently or received an early bonus? Don’t know where and how to utilize these funds? Here are a few pointers which will help you grow your wealth in a systematic way!

plan your finances in your 30s

One of the best things to do when you touch 30 years of age is financial planning. A safe and sound financial plan in your early 30s will help you overcome any sort of midlife crises and protect you from all kinds of monetary constraints.

To begin with, the first thing you need to do is secure your insurance products - namely term and health insurance. The former will take care of your spouse/children/family in case of your absence in the distant future, while the latter will take care of you and your family’s medical emergencies. These are the basics of every financial plan irrespective of you being single or married. If you are unable to purchase either of the two, keep at least 2x-3x of your monthly income separately in a savings bank account. This will serve as your emergency fund.

Once you have carefully structured your safety net, it is time to build your investment portfolio. An excellent option is to invest in mutual funds. Mutual funds are relatively less expensive and can be easily subscribed online. Here are a few tips for financial planning in your 30s.

Debt Repayment

If you have any type of existing loan, you need to clear it off as soon as possible. The most common type of loan prevalent among young investors at this stage of life is an education or auto loan. Repayment of loans is essential for creating a credit rating. This can have an impact on your future capacity to take a loan. The faster you pay back the loan, the better are your chances of availing a loan in the future.

Savings

One thing which should be a permanent part of every individual life irrespective of having/not having an investment portfolio is savings. 30s is usually when you have a higher earning potential, hence you should save more. It is also a time for you to invest for your retirement, marriage, child’s education, etc.

Restructure your portfolio

It is advisable to restructure your existing insurance portfolio. You need to keep in mind that the amount of coverage which your insurance policy provides would be substantial for you and your family. Your sum assured must be 10x of your annual income. Even if your employer provides health insurance, it is better to get a separate policy for yourself.

Investment Portfolio

When you are employed, do not hesitate to subscribe to an EPF. It is offered by all companies and is opened on your behalf. This is the first product of your investment portfolio. Depending on your earning capacity and risk appetite, you can select suitable investment products such as mutual funds. Keep a good ratio of income to expenses by keeping 10% into permanent savings, 10% in insurance products and 20% into investment products while the remainder 60% as your maintenance income in hand.

Spend on Experiences

We do not recommend that you are required to save everything and hoard money. Keep a bit for expenses which help you gain experiences and add to your overall skills other than the ones required by your employer. There are ample of self-learning classes and hobbies which can be subscribed online with minimum cost. The more skillful you are, the better are the prospects in the near future.

Now that you are aware of the planning process, here are a few reasons why mutual funds should be a part of your investment portfolio in the early 30s.

  • Diversification: ‘Diversification’, is one of the greatest benefits of investing in a mutual fund. A mutual fund can give access to a wide range of stocks and bonds to invest in. To add further, diversification reduces the overall risk of loss arising out of market volatility.

  • Professional Management: The early 30s are an important stage in your career. It is a senior management age group which pretty much can determine your future role for the next 10 years. You are required to keep all aspects of your job accurate. This will give you less time to focus on other areas such as your personal investments. This is where mutual funds can be beneficial as they are managed by a group financial experts on your behalf. You do not have to personally manage the fund.

  • Wide Options: Mutual funds come in multiple variants. There are many types and styles of mutual funds floating in the market, ranging from open|closed|stock|bond|sector|hybrid|debt|ETFs|Target Based|Money Market and the list goes on and on. With so many types, you can pick multiple funds which suit your financial needs and goals.

  • SIP or Systematic Investment Plan: There are many times when you will not be able to pull out a huge lump sum amount in your early 30s as you may not have a high income in hand. You can make a simple monthly investment via SIP towards a mutual fund of your choice with a minimum of ₹500. Additionally, investing on monthly basis will help you take advantage of rupee cost averaging.

  • Liquidity: Due to the severe demand of mutual funds in the market, they are highly flexible when it comes to liquidity. You can easily sell your entire mutual fund and the entire amount will be credited to your linked bank account within 3 business days. Therefore, you need not worry in case you need emergency funding.

  • Tax Benefits: An ELSS mutual fund is a tax saving Equity Linked Mutual Fund which invests primarily in equities and equity related instruments. Under an ELSS mutual fund, you can avail tax benefits of up to ₹1,50,000/- as per Section 80C of the Income Tax Act, 1961. Additionally, ELSS plans come with a dual benefit of wealth creation and tax saving. Also, they have the shortest lock-in period of 3 years.

  • Wealth Creation: The purpose of a mutual fund is to generate capital and wealth over the long run. It is a best way for you to build wealth in your early 30s.

Recommended Read: Best Long Term and Short Term Investment Plans

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Karan Sharma
Written by Karan Sharma
Content Specialist and Strategist, foolishly creative and always ready for a game of 'Call of Duty'.