The most significant goal in wealth creation is to attain financial freedom. This “will” to be free comes to those who are willing to learn and earn. Ambitious professionals in their 30s have the potential to pursue a life sans financial woes. To begin with, start now, there is no room for inertia. Your next five steps to wealth creation could be the following.
Step 1: Set Your Goals – Short-term, Mid-term and Long-term
As cliché as this step may be, defining your goal is actually a soul searching journey. Pen down your immediate targets. Define the target for the next two to three years and for the next seven to 10 years and envisage the retirement phase of your life.
For the digital native generation, choose an application that will simplify your goal defining process. Invest some time and effort to research on the right digital investment application. The application is your partner in your wealth creation journey.
Investment apps or financial apps are tailor-made to make your life easy and set your goals into motion. Move to the next step once you have defined your goals.
Step 2: Assess Your Income, Expense and Debts
Simply put, assess how much you are earning versus how much you are spending. Inculcate the habit of creating a budget for the month which should be closely monitored. Once again – go digital by choosing an app that will enable create and monitor your budget in a seamless and efficient manner. Discipline is the key here.
Step 3: Manage Debt Smartly
Professionals in their 30s will have different priorities and will consider taking a loan at some point of time. Investing in a home or buying a car – each one has a different requirement. Banks to fintechs to non-banking financial companies (NBFCs) have a diverse range of financial solutions that can make buying a home or a car a delightful experience.
- Choose a smart and simple loan option that does not add stress to your repayment cycle. Research well, compare the various options available, understand the details of the offerings such as processing fees, the interest rate regime and other nuances.
- Seek guidance, especially for long term tenure loans such as home loans.
- Once the loan is finalized, be diligent in repaying each and every installment on time so that you can earn a very good credit score.
- In a nutshell, be smart and wise about the loans you choose. Also, when in debt – don’t over indulge in other unnecessary expenses. Frugality is a virtue.
Step 4: Short-term and Long-term Financial Goals
Classify your financial investment now into two major (or even three) buckets and create an asset allocation plan for each.
Emergency Fund
Keep aside an amount for emergency needs only. Ensure that the set amount is not used unless there is an emergency only. Don’t succumb to any temptation. One can open a separate bank account only for this purpose.
Plan for the next 12 months
- So to begin with to make your 12 months’ goal work – create a list of options that will direct you towards the goal. Take for example, you want to take this international trip in the next 12 months and the cost estimated is INR 5 lakh, then plan now. Set aside an amount each month and park it in a recurring fixed deposit for a period of 10 to 12 months. One can also look at ‘liquid funds’ where the rate of return is anywhere between 3% to 6 %.
Planning for the next 5 to 7 years
Now moving on to your goals for the next five to seven years. Here the plan will be different – understand your risk appetite, understand the various options available and how you can leverage it. The simplest way to start is the mutual fund route, start with a systematic investment plan (SIP) and choose a fund with a five-year horizon at least.
You can also look at parking some amount into direct equities. Research well and do not get carried away by sentiments – remember it is your hard earned money. Another option is to invest in corporate bonds of specific companies or even government bonds. The options should be tailor made to work for your goals. Digital apps can also be used well to make your investments. However in case of any doubt, do opt for a wealth management expert’s advice.
Planning for the next 30 years
As the saying goes, “Patience is not the ability to wait, but the ability to keep a good attitude while waiting.” Every individual has short term and long term goals which they desire to achieve, but we tend to neglect the most vital winning strategy to create wealth – patience. Money should be able to grow on an autopilot mode, so that one can enjoy the fruits of one’s own labor.
Here are a few options:
- Capital market investments can be effective in the long-term: The SIP route via mutual funds or direct exposure to the stock market is a good starting point. The strategy will differ from person to person depending on the ability to take risks, investment horizon and other commitments. The equity market has a number of options from sectoral picks to choosing only blue chip stocks, or even preferring to go by the top 50 stocks in the Nifty index. Diversity and consistency are the keys here.
- Portfolio management services (PMS): Another option is to opt for a PMS, wherein the fund manager will choose to invest across various instruments such as equities, fixed income instruments and also in other debt and structured products. PMS is a professional service wherein the fund manager will customize the portfolio basis the investor’s goals and other important parameters.
- Other asset classes: Investors can also look at asset classes such as real estate, gold or commodities. Each asset class comes with its own opportunities and risks. Again, a careful assessment should be taken before investing.
- National Pension Scheme (NPS): NPS is an investment opportunity to enjoy a carefree retirement life. NPS is governed by the Pension Fund Regulatory and Development Authority (PFRDA) and has a low risk exposure. This system is less risky and is governed by the Pension Fund Regulatory and Development Authority (PFRDA). This investment strategy grants 60% of the corpus amount as tax deduction and the remaining 40% are to be reinvested, taxed according to the tax bracket of the individual. One can also receive a tax exemption of up to INR 50,000 on the NPS investment amount under Section 80CCD.
- Employee Provident Fund (EPF): A small amount of the monthly basic pay of an individual is set aside to safeguard the retirement of the employee. An equal amount invested by the employee is contributed by the employer for the retirement benefit of the employee. Based on the years of working, the amount under this scheme keeps on increasing and thus at the time of retirement, a huge corpus is accumulated.
Step 5: Get Insured
Insurance is another area where one tends to take it very lightly. In fact the ones who insure early reap the maximum benefit. Let’s start with health insurance, a must to have. Choose a cover that takes care of hospital, critical illness or even basic charges like out – patient fees. Choose a cover for your family as well. A comprehensive health insurance plan is a real boon when there are unforeseen medical emergencies and one is saved from paying huge bills. Pay your premiums on time and earn hefty bonus points from a policy if there are no claims.
A health insurance plan rewards the young and the healthy with lower premiums and offers to be a part of several well-being programs. For example, certain health insurance companies offer attractive discounts on a gym membership exclusively for their customers.
Another area which is also very important is life insurance. The aim is to ensure your family is financially secure in case of an unforeseen death. Here too, it is advisable to start early so that one enjoys lower premiums.
While life and health are important, do not ignore other facets which include home insurance or even travel insurance. The objective is to safeguard one’s financial risk by investing in a product that gives protection from the risk. In case of a medical emergency abroad, a travel plan with a medical cover can prove to be a boon.
