1. Financial situation in 30s
People’s financial background are as diverse as individuals themselves and it is impossible to find a common thread. However, let’s assume that most Indian students normally graduate (or post-graduate) in the early 20s. Give it a few years with strong professional experience and acquired skill set, and climbing up the career and income ladder is inevitable. And we can safely assume that they will be in mid-senior and mid-income positions at the very least by the time they hit their 30s.
Like all ‘good and right’ things in life, investing for future is not appealing for many. Because it means that you have to spend less now. For instance, at the beginning of your job on a small pay scale when you taste financial independence for the first time, saving may not be a top priority for all. But sooner or later you will have to start investing and not least because of 80C tax benefits.
Retirement fund, emergency fund, life goals like buying a home or car, world tour, starting a business – every dream can meet its destination through early and disciplined financial planning. If you are 30 years old, then your investment horizon is 30 years (considering you retire by 60). This is the time when you can venture into high-risk investments like mutual funds and reap high returns. Use our investment calculators to find out how much you should keep aside in savings now to achieve your goal, whether it is buying a property or getting pension post 60 etc.
2. Investments to consider in 30s
Young professionals in their 30s tend to be more focused in their careers and careful with money as responsibilities increase with age. This is particularly true for those planning to start a family (or have already started). To have a peaceful and independent life when you will no longer work, the investments should start now. Given below are ways to strengthen your portfolio and earn inflation-beating returns.
Investing in equity funds (like ELSS, company shares) is riskier compared to fixed income schemes like fixed deposits or PPF. However, they have higher potential and you may make more money from them. For instance, ELSS is the only tax-saving mutual fund and it has delivered 14%-18% returns in the recent years.
Cleartax Invest is portal you can consider as we handpick the best-performing funds from country’s top fund houses. If a lumpsum seems unaffordable for you at this juncture you can also consider systematic investment plan or SIP, with amount as low as Rs. 500. Because we believe some investment is better than no investment.
b. Public Provident Fund
A salaried person can claim deductions up to Rs. 1.5 lakhs. If you have invested in an equity fund, opening a PPF account for the remaining amount can diversify and hence balance your portfolio significantly. It is an especially sound strategy for long-term investments. It enjoys triple exemption (EEE) benefit and can be opened with any bank or post office.
c. Other fixed-income schemes
There is a slew of low-risk investments that assure you capital protection, tax benefits as well as returns in the form of interest-income. Sukanya Samriddhi Yojana, Tax-saving FDs, debt funds among others to name a few.
Most companies offer medical insurance to employees and their dependents. This is a great respite in the times of rising cost of healthcare. But in case you are not covered, do buy one at the earliest. The more you delay, the costlier it will become. Investing in life insurance is another must-invest. In case of something untoward, this can be a breather to your family members – the corpus can take care of your immediate as well as future financial needs. Again, the early bird gets the meatiest worm. So, make sure that you and your family have enough insurance coverage.
3. Tips for investors in their 30s
a. Assess income and expenditures to plan for retirement and other goals
As you plan your investments, have a good idea about the family (or individual) income and possible monthly expenses. This will give you a realistic idea on how much to keep aside for savings without going broke by the 3rd week of the month. It will also tell you where to cut down. It is OK to start as small as Rs. 500 per month as long as you are regular. But don’t forget to step-up your contribution as you start to earn more.
b. Building a strong and lasting portfolio
Being in the 30s, you have a long investment horizon and can afford to be an aggressive risk seeker. Going for equities or equity oriented funds can deliver supreme returns over time. Market volatility burns less when the you invest for long-term. Diversity is strength and having a mix of equity and debt funds or schemes can work well.
c. Be a stickler for financial discipline
It is not easy to shell out money towards these schemes every month – money that can be spent on things you like. In some months, you might be tempted to skip. Sometimes, an emergency can crop up. For these reasons, It is better to automate payments on your salary day itself. Ask yourself if you badly need that product or service or if it is impulsive spending and borrowing.
d. Use schemes based on the power of compounding
A burger that costs Rs. 80 today may cost Rs. 90 this year. Inflation is inevitable and you must consider schemes that generate returns high enough to beat this price rise. Equity funds like ELSS are examples.
e. Don’t touch retirement fund even in case of emergencies
Have an emergency fund in the form of a recurring deposit or income fund. But delving into your retirement funds like PPF in case of financial emergencies is not a good idea. You are literally stopping the money from compounding. Let the wealth build.
6. Increase the amount you save when possible
You might be investing only a small amount now. But it doesn’t have to be so, forever. Pay hikes, bonuses, promotions, extra income from other sources – these are positive possibilities you can make use of to enhance your portfolio. Increasing even by 10%-15% every year can make a big difference to your corpus. For instance, if you are putting Rs. 5000 monthly in Systematic Investment Plan or SIP, make it Rs. 5500 next year.
In short, you have the means and the time to be flexible as well as aggressive with your investments. Do not delay anymore – investing is that simple and rewarding.