5 Commandments for your 30s

Most investors start to really get serious about planning for their retirement, and other life goals such as their children’s educations, buying a house, and so on, when they are in their 30s.

Before you reached this age, chances are you would not have taken a close look at your cash flows, or thought about your long term major financial needs. Maybe you were unmarried, or were married but didn’t have kids and were spending your cash inflows only on yourself, your spouse and your parents.

By the time you are in your early 30s, you have settled down a bit, have a stable career path, have a family to provide for and have a better, more crystallized idea of what your major financial obligations are going to be. By your mid 30s, you’ve been working for about a decade now, have some funds salted away in your EPF, PPF, tax saving mutual fund schemes, and perhaps some direct equity and other investments.

So what do you need to do now? Here are the steps to make sure your financial life takes on a more structured definition and you sleep well at night, knowing that you have taken control of your financial life.

1. Know What Your "Number" Is
   
   The retirement corpus that you require can be quite a hefty figure.
   First, figure out what you are spending today on a monthly basis - on various categories of expenses such as household, medical, entertainment, travel (including fuel), EMI, children’s school and tuition fees and so on. Next, see which of these expenses are likely to continue in your retirement years. Once you know this figure, you can inflate it to see what the same lifestyle will cost you once you retire.
   
   Our Retirement Calculator can help you with this. Remember, if you like the calculator, share it!
   
   Here’s a small example:
   
   Mr. X is 35, wants to retire at 60, currently spends Rs. 75,000 a month on household and other expenses, and spends about Rs. 5 lakhs a year on travel and medical. He assumes household inflation is 7% per year both pre and post retirement, travel and medical expenses inflate at 10% per year, and he will earn 6% per year on his retirement corpus once it is built and he invests it after his retirement.
   
   How much will he need to retire and maintain his current lifestyle?
   
   Over Rs. 29 crores.
   
   Is this achievable? Yes, it is. Your financial planner can show you what disciplined, structured investments to make to achieve this, as well as your other life goals.
2. Get Adequate Life Insurance
   
   We’ve seen enough cases of people passing away at surprisingly young ages, like in their 30s and 40s, from stress and an unbalanced or unhealthy lifestyle, leaving a spouse and young kids behind.
   
   The last thing that a grieving family needs, is added worry of a financial future that is not secure.
   find out how much life insurance you need by way of term insurance, and take it.
   
   Remember, not everyone needs life insurance (only those with liabilities and financial dependents) so first check with your financial planner if you need life isnurance, and how much. Our Human Life Value (HLV) Calculator can help you see how much you need.
3. Build a Contingency Fund
   
   A contingency fund is that kitty of funds that is built up and kept aside, never to be touched, except in case of an emergency. An emergency could include a situation where cash inflows (salary or business inflows) are halted, suppose you lose your job or the business environment is not healthy.
   at times like these, expenses continue and they need to be met. They can be met from your contingency fund.
   
   It is advisable to have at least 6 months expenses kept aside in your contingency fund (held across savings accounts and liquid plus mutual funds for easy access). Your contingency fund can be 6 months to 2 years of expenses, depending on your risk appetite and tolerance.
4. Invest As Much As Possible
   
   Life today offers more than enough distractions to keep us from investing as much as we can. But the reward of maxing out your investments should be motivation enough. Consider 2 individuals, both 30 years old, earning approximately the same salary, both married, without kids.
   
   One individual, Mr. X, invests Rs. 35,000 per month into a well structured portfolio of diversified equity mutual funds, which will provide a long term annualized return of 15%.
   The other, Mr. Y, invests Rs. 25,000 per month into the same portfolio.
   
   Only a Rs. 10,000 per month difference.
   
   By the time they are 60, these are the corpuses built from this single monthly investment:
   Mr. X: Rs. Rs. 24.23 crores
   Mr. Y: Rs. 17.30 crores.
   
   A difference of Rs. 6.93 crore. To see how much wealth you can build with consistent SIP investments, you can use our SIP Calculator.
5. Make a Will
   
   When we tell our young clients to make a will, some of them respond with "I have plenty of time to make a Will, I’ll do it when I have more assets".
   
   Don’t wait. You do have assets, they can ease your family’s life in some way, and while you may have plenty of time, nobody knows this for sure. So make a will. It’s easy and not expensive. And it prevents your assets from going to the Government, and gives them to your designated beneficiaries instead.
   
   Follow these 5 simple commandments for your 30s and the sense of empowerment over your financial life will be well worth the time spent.