ESSENTIALS TO FOLLOW WHEN YOU INVEST IN YOUR 30's

When you turn 30, your financial responsibilities suddenly “increase”. Or at least they seem to. This is because the 30s is the age most people start taking money seriously. When you are in your 30s, you are settled in your job, married and have children. Your financial obligations increase and you have various goals like children’s education, buying property and saving for retirement. As expenses shoot up, simply saving money in your bank account or making random investments will not help you in achieving your financial goals.

The following are some essential steps to be followed when you plan your investments while you are in your 30s:

Increase your monthly investments as much as you can:

Investing the bare minimum is a mistake most investors make. Even a small increase in your monthly investments results in a huge difference in the amount you accumulate over the long term. This is due to the compounding effect on money.

Let’s say there are two individuals A and B who earn Rs. 60,000 per month. They both invest in the same set of mutual funds which give returns of 12% per annum over a same time period of 10 years. The only difference is the amount of investment made every month. While A spends 70% of his monthly income and invests Rs.18000 every month, B spends only 60% of his income and invests Rs. 24000 per month. The total corpus, assuming constant monthly investments and constant returns of 12% per annum over 10 years is Rs. 41.8 lakhs for A and Rs. 55.8 lakhs for B - a difference of Rs. 13.9 lakhs. A small difference of Rs. 6000 per month in investments has resulted in a huge difference in the end-corpus.
Therefore, the first important aspect of investing in your 30s is to maximise your investments as much as possible.

Build an emergency fund:
Life is uncertain and the best you can do to combat this uncertainty is to ensure you are financially prepared for this. Emergencies can be a sudden job loss, a fall in income levels or a sudden medical expense if you do not have health insurance. Start planning to build an emergency fund to deal with such uncertainties while you are in your 30s. This fund should be earmarked for emergency purposes only, and should not be touched for regular expenses. Remember that this fund should be easily accessible, as you are preparing this for an emergency. While experts opine that you should set aside at least 6 months of your expenses in an emergency fund, this can be even upto 2.5 years of your expenses, depending on your risk-return tolerance. Liquid investments usually yield a lower return; so plan your emergency fund accordingly.

Understand your financial goals and commitments in life:
You investments must be planned to help you realise your financial goals, without disturbing the returns.
For example, you cannot plan to purchase a car, 5 years from today using the amount in a 10 year fixed deposit which you started a year back. Each of your goals will have to be met at different points of time in your life. So you must invest in various instruments according to these goals.
Let’s say you estimate your child’s post-graduate education in 15 years. You estimate today’s cost to be Rs. 10 lakhs for the same. Assuming an average inflation rate of 7% per annum, you will need Rs.27.5 lakhs at the end of 15 years. So you will have to plan your investments so that you can meet this financial goal.

Similarly, you must also understand the quantum of your retirement savings. Assume your monthly expenses are Rs. 50000, and you expect the pre and post retirement inflation to be 7% per annum. You expect to earn 8% on your savings post-retirement. You will work for the next 25 years and you expect to live for 20 years post retirement. You will need a total of Rs. 5.9 crores to sustain the present lifestyle.  This amount looks humungous and unachievable. But it can be achieved with proper planning and investing.

Get sufficient insurance cover:
A sudden death of the primary earning member can leave dependents devastated, both mentally and financially. Ascertain the right amount of insurance needed, and ensure that you have taken enough cover to protect your family in case of your sudden death. Remember, the earlier you take an insurance cover on your life, the lower will be the premium to be paid. Also ensure you have other insurance policies in place - like a health insurance, personal accident cover etc.

Register a Will:

Legal hassles can be plenty for your family members if you do not have a registered will in place. Many people ignore this and start thinking about this when they are in their 50s. But as life is uncertain, death can occur anytime. Making a will is easy and inexpensive. So do this on priority.

Start planning your investments keeping in mind the above points.