How to handle your finances in your 30s?

CHENNAI: When you are in your 20s, life is less about responsibilities and more about getting up on your feet in the world. You are not too young but you would have just started on your career path. It is in your 30s when almost everything changes.

You may get married, have a kid or two, and start earning more as you move up the corporate ladder in professional life, your parents would have aged and you may have to increasingly start looking after them, look for a house to purchase (if you still haven’t), among other things.

It won’t be wrong to say that this decade of age 30-40 is an important one when you see that it helps put a foundation for the rest of your financial life. So, what are the important things that you should keep in mind when you step into 30s? Here are a few important ones to consider:

Chances are many of you in your 30s are underinsured. So, this is a good time to find out what is the right life insurance cover for you and then put it in place as soon as possible using term life insurance. Don’t go for endowment/moneyback plans or Ulips for this. Also on the health insurance front, don’t depend only on your employer for health coverage. Buy a family floater health insurance for yourself and your dependents.

You also need to start accounting for unexpected and emergency expenses. For this, try to gradually put in place a buffer or pool of money for at least 6 months’ worth of family expenses. You may not be able to build a large buffer in the short term. But start anyway and gradually scale it up over the next few years.

Most people start investing and saving randomly. Many times, to save taxes and many times trying to copy their family/friends. But 30s is a good time to begin your goal-based investments and give a direction to your portfolio. So, find out your key life goals and begin investing separately for them. For example, if you plan to buy a house in the next five years, and have your kid’s higher education beginning in the next 12 years, then do some mathematics yourself (or get yourself a fee-only investment advisor) to answer questions like i) How much money is needed for each goal? Ii) When is the money needed? iii) What’s the best investment instrument to use for the goals? iv) How much money is required each month for these goals? Setting clear goals will give proper direction to your investments and help keep track of how prepared you are for each of them.

In your 30s, it may seem too early to worry about retirement in your 50-60s. But don’t make the mistake of just relying on your company PF for retirement. Once you have begun saving for other goals (discussed in the previous point), you should start investing some amount in equity funds also to generate inflation-beating returns in the long run.

Your income will increase every year or so with salary hikes and job switches. So, try to increase your savings contribution at a rate at least equal to your income growth.

And if you have long-duration loans (like a home loan) and want to clear them off soon, then you can start making periodic prepayments. But begin prepaying your home loan only once you have taken care of the above points. Don’t make the mistake of your desire for aggressive home loan prepayment compromise investments for other goals.