By now, you should have a good idea of what you value in life, and what kind of lifestyle you want to lead.
This means that it’s time to stop spending on stuff that isn’t important to you. Do you know how much crap I bought in my 20’s that was a complete waste of money? Too much.
Sit down, think about what you want to accomplish with your money, and then create a list of spending priorities that work for you. Then, spend according to those priorities.
Your spending will be more in line with your values, and you’ll be happier as a result.
If you have a spouse, this involves them, too. My wife and I are constantly talking about what are the important things we want to spend our money on.
In our 30’s the constant topics revolved around upgrades to our home, travel, investing in our businesses, and our kids – three growing boys add up!
2. Buy Health Insurance
Now that you’re getting older, you need to think about health insurance. Even if you live a healthy lifestyle, there are reasons to have health insurance.
If you have kids, you need health insurance. If you can afford a high deductible plan, it can make sense (if you have relatively few health care needs and costs) to purchase one.
You can then put money into a Health Savings Account, earning you a tax deduction and allowing the money to grow tax-free as long as you use it for qualified expenses.
3. Create a Retirement Plan
Many people in their 30s have yet to perform a retirement calculation. Now is the time for you to perform that calculation.
Use one of the many online calculators to figure out what you need in retirement, and what you need to do now to meet your goals later.
Get serious about what you want to do in retirement and make a plan.
4. Diversify Your Income
Now that you’re in your 30s and things have settled down a bit, it’s a good time to consider income diversity.
Don’t rely on your day job for your entire financial well-being. That’s just asking for trouble.
I’ve been able to diversify my income by starting this blog and other online ventures to complement my revenue from my financial planning practice.
Try to cultivate income diversity with side gigs, investments, and other endeavors. That way, your entire family’s financial future isn’t at risk if you’re fired from your job.
5. Get Financial Planning Help
As your finances become more complex, there is a good chance that you will need help working through the ins and outs.
Whether you need help with tax planning (I love my accountant), plotting a retirement course, or figuring out what insurance policy is best for you, consider working with a financial planner that has no conflicts of interest.
Unfortunately, most people assume financial planning services are reserved for individuals with very high net-worths. For a long time, that has been the case.
But, a relatively new company that is bridging the gap between this very helpful financial service and the younger generation (who typically don’t have millions of dollars of assets) is Facet Wealth.
Before turning 30, you should make certain financial decisions as early as possible for a stress-free future where financial contingencies are a far cry.
So what are those decisions? Here’s a list of 4 basic decisions that are almost universally applicable, so let’s take a look.
1. Ensure Yourself – There is no specific age for taking out an insurance policy and the earlier you start the better.
By the age of 30, you are probably one of the contributors to the family income if you are in the joint family system or the main breadwinner in your nuclear family.
Even though your spouse earns, there will be financial loss in case of any unfortunate event. Insuring is always the best answer for income protection and buying a term plan with considerable coverage is also affordable.
2. Plan for Retirement – Retirement is the last thing you think of when you just hit the 30-year age mark. The whole life ahead seems too short to accomplish all you desire and the thought of retirement leaves a sour taste in the mouth.
But planning early is the key to a comfortable retired life. Post 40 when the majority of people plan for their retirement, the accumulated corpus falls short because of other liabilities.
So open a PPF Account and start saving a little amount every month. Let compounding do its magic and you won’t have to worry about your retirement corpus.
3. Health is Wealth – Moving on from life insurance, can health insurance be left far behind? In the year 2012, the insurance sector reported a surge in insurance claims to 47% as compared to 15.8% in 2004 and that too in the age group of 26-35 years.
Yes, though you are turning 30, the modern lifestyle has given rise to newer diseases that do not consider age while attacking the individual. So don’t be foolish and invest in a health plan probably a family floater one to cover the entire family.
If affordability is a factor, you can start low and then add a top-up plan with your base plan for complete protection.
4) Buy a SIP (Systematic Investment Plan) – Mutual funds have become attractive with the diversification they provide and with a positive trend observed in the stock market, investing in a SIP of any good performing mutual fund house is the next best decision you should make.
Starting early gives the benefit of compounding returns where the money grows exponentially over the years.
So when you need funds for your child’s future or for buying a house or for that much-awaited Europe trip, you won’t have to look anywhere else.
Investing in multiple SIPs is ideal taking into account the quantum of savings.
An average investor uses his money and invests the rest; a good investor invests his money and uses the rest. Investing is a risk vs. returns game.
While some have made millions, many have lost as well. Learn the key characteristics of a good investor to become one.
Goal setting
A good investor will always have a clear goal. It is very important to have a plan to achieve the goals. Variations most likely tend to divert an investor from the agenda.
Having a plan of action within a defined period for a particular return on investment is a sign of a good investor.
They are prepared for the uncertainty of the market while the plans are usually made considering both the sides
Patience
Over some time a good investor creates wealth due to his patience. It is probably the finest quality to have. A good investor has faith in his plans.
They usually do not feel bad about the 10% downtick; they would rather sit tight to celebrate the 100% uptick.
They are persistent about sticking to the plans. They usually do not get into the buy and sell trends.
Knowledge
Besides utilizing time to the best, a good investor possesses knowledge of the market. He/she understands the position of funds and has researched the company’s investment strategy and philosophy.
You need to know where your money is being utilized. A good investor analyses the growth pattern of the company over the years from genuine sources.
On the accounts of the anticipations and knowledge, a good investor will have a defined plan for exit point as well.
An active learner who is open to making the right choice based on the genuinity of knowledge is a good investor.
Right Decision A good investor knows the time. They keep an eye on the current scenario in the market. They update their knowledge about market activities and growth.
Having a sound understanding of trends enables the investors to overlook their plans and decide the term of the investment.
Having an understanding of current trends and company market position makes one a good investor. They own their mistakes and learn not to make them again.
The good investor doesn’t need to jump into the trends; he/she just does what is right.
A Financial Advisor is also your wealth guardian. A financial advisor takes care of his clients as a Family Doctor.
He looks holistically at your financial portfolio & also advises the clients even when he isn’t handling them directly.
1. Do you Google the medicine when you are ill?
Magic is not in medicine. The right dose of Medicine at the Right Time with the Right Combination & Right Precaution will give you a magical recovery.
Only a skilled & experienced advisor will be able to do the magic to your financial health.
You must know the work experience & certifications of the financial advisor before hiring.
2. Would you go to a doctor whose clinic is always empty?
Finding out the size of an advisor’s client base can tell you a lot about what kind of service you can expect to receive.
Don’t forget to ask for the advisor’s client base and top clients.
3. Do you visit a Multispecialty Hospital or a local doctor for a health check-up?
You need to know the infrastructure setup of the advisor. It is also advisable to visit the advisor’s office before hiring him
4. A Part-time nurse or a Practicing Doctor?
Feel free to ask whether the financial advisor is a part-time practitioner or a full-time Financial Planner.
It can be dangerous working with part-timers as they work only for their own benefit.
5. How about a medical emergency and your Doctor is on holiday abroad?
It’s very important to know the team members and ways to reach the advisor.
It can be quite difficult for you if your advisor is unavailable while he is traveling or ill.
6. Technologically updated Doctor or old-style Practitioner?
It is equally important for you to know if your advisor is technologically updated or not. Bundles of documents and several signatures: not a good idea.
Ask for the website address, link to Mobile Application, and paperless transaction facility.
7.Would you enjoy Health check-up, Medicines & Doctor consultations at different places?
Ask for the product basket offered by the advisor. Your life will be at ease if your advisor can sort all your financial needs.
Before you hire a financial advisor, it’s crucial to understand how they work.
Will they put your best interests first, or will they serve themselves? And will they create a tailored list of recommendations, or throw a generic list of brochures at you during your first meeting?
Many investors think of SIPs and mutual fund schemes as synonyms, however, that is not the case.
SIPs are merely tools that allow you to invest in a mutual fund scheme over some time.
It can be monthly, quarterly, or semi-annually depending on your financial goals.
It acts as a convenient option for salaried individuals to regularly invest in mutual funds.
The money can get deducted from their account automatically thereby engraining a financial discipline.
How to Start SIP Investment?
You can start a SIP with a minimum amount of Rs. 500. Here is how to start a SIP
investment if you wish to buy mutual funds.
• Basic Information The first step of SIP investment requires you to provide all your basic personal information in an online form such as your name, date of birth, address, mobile number, etc.
• Aadhar Based eKYC The above procedure for SIP investment can be simplified if you have an Aadhar card. You have to enter your Aadhar number and authenticate it with a One-Time Password (OTP).
This will pre-populate the online form with all your basic information details available in the UIDAI database.
IPV through a video call is not required if you complete the eKYC procedure through Aadhar as the UIDAI database already has your biometric information.
However, there is a statutory limit that will not allow you to invest more than Rs. 50,000 per fund house in a financial year if PAN card details are not submitted by you.
You can submit your PAN card and enhance this limit.
• Upload Documents In the next step, you are required to upload a scanned copy of your PAN card and address proof.
Benefits of Increasing Your SIP Investment Every Year
Here are some advantages of increasing your SIP every year.
• Counters Inflation While investing, the return adjusted for inflation is a significant factor to be considered.
As inflation increases every year, the amount you find substantial today may not have the same worth some years down the line.
Hence, if you do not increase your SIP investment amount every year, you ignore inflation which erodes the purchasing power of your hard-earned money.
• Builds A Bigger Corpus When your income and surplus increase every year, it makes sense to increase your SIP investment too.
It adds to the power of compounding and helps accumulate greater wealth by building a bigger corpus. Even a small 5% to 20% increase in the SIP investment plan at the end of 10, 15, or 20 years can make a big difference.
Also, you can avoid increased documentation as it will reduce the necessity of creating and tracking multiple stocks.
A systematic Investment Plan or SIP is a method of investing money in mutual funds. The other way to invest in a lump sum or one-time payment.
In SIP, you invest a fixed amount of money in a mutual fund of your choice every month.
The setup is such that the money is automatically debited from your bank account.
To know what amount of monthly SIP you need to invest to achieve a certain money goal, use our SIP calculator.
1. You Can Stop the SIP Anytime
There is no fine if you decide to stop a SIP plan. If you want to stop it, you simply have to opt-out of the SIP plan.
This has a very big advantage over recurring deposits (RD) which usually put a fine on you if you want to stop it.
After stopping your regular SIP investment, you can choose to get back the amount or let it continue to be invested in the mutual fund.
2. You Can Skip SIP Payment
If for some reason you don’t have enough balance in your account for the SIP investment of a certain month, you can continue with the SIP next month without any problems.
No fine or charges will be levied against you. In the case of RD, there will most likely be a fine for missing a payment.
3. You Can Invest Very Small Amounts
With SIP plans, you can start investing in mutual funds with an amount as little as ₹500 a month. Here are the best mutual funds to start a SIP investment with ₹500.
Even if your savings are not very large, you can still take advantage of the growth being experienced by India by investing in mutual funds!
4. You Benefit from the Effect of Compounding
When you invest using a SIP plan, your monthly SIP investment gives returns. Those returns are added to your actual investment amount and invested again!
So over time, your continuous monthly SIP and the returns earned by them are subjected to a compounding effect that ensures exponential growth.
5. You Can Start a New SIP If You Have More Money
If you start earning more or if you can save more, you can always start a new SIP plan in the same mutual fund or a different mutual fund.
That way, the extra money will also be invested for the future!
6. You Do Not Need to Worry About Timing the Market
You must have heard that you shouldn’t invest in an inflated market. When you invest using a SIP plan, you do not need to worry about timing your investment at all.
At times when the markets are high, your monthly SIP buys you a fewer number of units of a mutual fund. When the markets are low, the same monthly SIP amount buys you more units.
Therefore, in the long term, you do not pay very high prices for any unit of a mutual fund. This is called the rupee cost averaging.
7. You Become More Disciplined in Your Savings
It is a common complaint of many people that they aren’t able to save money. The truth is, the more you earn, the more you spend.
This is why you should save first and then spend. If you fix your date of SIP investment right after the date you receive your income, you invest before spending!
While it is pretty natural for all of us to feel a little less stressed at the start of the year, one exercise that you can in April to ensure the rest of your year is also stress-free is to review your finances.
This review will help you assess how you have done with your finances in the last year, where you stand today, and steps you need to take to set yourself up for success financially in the short and long term.
1. Review Your Goals
The start of the financial year is a good time to review your progress towards your goals.
The target amount of your goals might have moved up more than you had assumed when calculating the amount, you will need.
For instance, if you were planning to buy a car, the prices might have seen an above-average increase due to high input costs.
In such a scenario, you will need to recalculate the amount you will need to invest every month to have the amount you need when the time comes.
Additionally, if there is a big change in your life stage in the last year, you might have to rework the priority or add new goals.
2. Review Your Portfolio
While investing for the long-term is the key to wealth creation, that doesn’t mean you should invest and forget.
A periodic review of your portfolio is essential, and the start of the financial year is the perfect time to do it.
A review will help you understand what funds have outperformed, which have performed as per expectation and which have been laggards.
And while removing laggards is tempting, you need to be careful how you approach making that decision.
Ideally, you should only consider those funds which have been underperforming for quite some time (say at least 1.5 years).
What is most important is that you define underperformance clearly.
A fund giving negative returns might not be underperforming if the entire category has
fallen.
So, you need to compare the fund performance vs. the category average.
For instance, if the fund has fallen, but that fall is less than the category average, then you might want to stick to it because of its superior downside protection capabilities.
Reviewing your portfolio is also useful when your goals change. For instance, you started investing in an Equity Fund when you were 10 to 15 years away from your retirement goal.
But now, you have almost reached your target amount and are only two years away from your retirement.
In such a scenario, you need to allocate a higher amount of this accumulated corpus to fixed income products.
3. Increase Your Monthly Investment Amount
Ideally, you should increase your SIP investment by 10% every year with a rise in your income. This will help you reach your financial goals faster.
You can also look at other investment avenues such as the National Pension System (NPS) that offers you the additional Rs. 50,000 deduction over and above the Rs. 1.5 lakh deduction available under Section 80C.
4. Review Life Insurance Needs
Following significant life events like marriage, becoming a parent, buying a house, etc., your responsibilities increase significantly.
You need to make sure that your life cover is sufficient to cover all these additional responsibilities.
So, go back to the calculations you would have used to figure out the right cover for yourself, add the amount you will need to cover the additional responsibilities, and whatever extra cover you need, get that.
Remember, your cover should be enough to provide a monthly income to your dependents, settle all loans, and keep enough for future one-time major expenses like the education of your children.
5. Review Health Insurance Policy
Like life insurance, major life events like marriage and becoming a parent also call for the need to review your health insurance cover.
If you bought a policy before you get married, you would have, in probability, bought an individual cover and for an amount that will be sufficient for you.
Now with additional members in the family, you will need not only a more significant cover but also to make sure they are covered.
The most convenient way to achieve this is by converting your health policy into a family floater and increasing the cover.
This ensures continuity of the policy, and you don’t miss out on any benefits.
A Systematic Investment Plan (SIP), more popularly known as SIP, is a facility offered by mutual funds to the investors to invest in a disciplined manner.
SIP facility allows an investor to invest a fixed amount of money at pre-defined intervals in the selected mutual fund scheme.
The fixed amount of money can be as low as Rs. 500, while the pre-defined SIP intervals can be on a weekly/monthly/quarterly/semi-annually or annual basis.
By taking the SIP route to investments, the investor invests in a time-bound manner without worrying about the market dynamics and stands to benefit in the long-term due to average costing and power of compounding.
Top-Up SIP
Top-up SIP is a facility that lets you increase your SIP by a fixed amount or percentage (say 10%) every year or at pre-defined intervals in line with an increase in your income/savings.
This Top -Up in your SIP allows your investments to be in line with the increase in the cost of living or inflation and helps you plan for your financial goals right.
It can also help you reach your financial goals earlier or create a larger corpus for your goal.
Mr. A Normal SIP 5000 Investor A started investing 5,000/month using Normal SIP for 25 years with 12% Rate of Interest Total Investment: 15,00,000 95,00,000 Final Corpus after 25 Years
Mr. B SIP with 10% Top-Up 5000 Investor B started investing 5,000/month using Normal SIP for 25 years with 12% Rate of Interest Total Investment: 59,00,000 2.07 Crores Final Corpus after 25 Years
Power of Compounding
When you invest regularly through SIP and invest for the long term, the benefits are magnified by the compounding effect.
The compounding effect ensures that you earn returns not only on your principal amount (actual investment) but also on the gains on the principal amount i.e., your money grows over time as the money you invest earns returns.
Deposit (or FD) is a low-risk financial instrument that is offered by banks, post offices, or Non-Banking Financial Companies (NBFCS).
You can easily invest in a Fixed Deposit and grow your savings at a fixed rate of interest, which is higher than interest rates offered by savings accounts.
The convenience of investing along with the safety of your deposit can help you plan your short-term and long-term goals easily.
At Bajaj Finance Limited, you get attractive FD interest rates of up to 7.25%, so you can save for your goals easily.
Investing in a Bajaj Finance Fixed Deposit is easy, as you can invest from the comfort of your home through an end-to-end paperless online investment process.
In today’s times of increasing market volatilities, investing in a Bajaj Finance Fixed Deposit can help you get assured returns and steady growth of capital.
So you can build your savings with no effect of market fluctuations.
DID You Know? Bajaj Finance is now offering interest rates of up to 7.00% on fixed deposit and 0.25% more for senior citizens.
What’s more, online investors get 0.10% extra (not applicable for senior citizens) – Invest Online
SIP or Systematic Investment Plan is a plan through which a person can invest a small amount in a mutual fund at regular intervals (monthly/quarterly).
Hardly pinches your pocket
Most of us spend some money every day buying and eating a snack worth around Rs 15 or 20. Just saving that amount enables one to start investing in mutual funds through SIP.
That’s how small an amount is required to get started investing through SIP
While we all love and deserve to spend our hard-earned money, keeping a small amount aside each month can go a long way.
How often do we spend Rs 500 just over a whim? We may decide to order through one of the many food delivery applications or may meet up with a couple of friends at a coffee shop. Before we realize it, we end up spending around Rs 500.
Thanks to rising income and a higher standard of living, it doesn’t pinch as much as it used to.
After all, Rs 500 is what a couple of movie tickets or a couple of pizzas cost.
Most mutual funds allow investors to start investing with Rs 500 per month.
For an individual who has never invested earlier, starting with Rs 500 per month is also a promising beginning.
Therefore, this becomes a great way for new investors to begin as regularly investing Rs 500 per month over a longer period wouldn’t impact the investor’s wallet even if there is irregular income due to job loss or sabbaticals.
Magic of compounding
Investors would agree that Compound interest is one of the most powerful forces in the world! This is because of the impact it has on one’s investments. Investing over a longer period will create substantial wealth.
Investing just Rs 500 per month can result in the following scenarios
Over 10 years, a CAGR of 12% will offer Rs 1.2 lakhs
Over 10 years, a CAGR of 15% will offer Rs 1.4 lakhs
Over 10 years, a CAGR of 18% will offer Rs 1.7 lakhs
Over 20 years, a CAGR of 12% will offer Rs 5 lakhs
Over 20 years, a CAGR of 15% will offer Rs 7.6 lakhs
Over 20 years, a CAGR of 18% will offer Rs 11.7 lakhs
Over 30 years, a CAGR of 12% will offer Rs 17.6 lakhs
Over 30 years, a CAGR of 15% will offer Rs 35 lakhs
Over 30 years, a CAGR of 18% will offer Rs 71.6 lakhs
Let us look at the illustrations which offer a CAGR of 12% across 10, 20, and 30 years.
Over 10 years, the investment of Rs 500 per month turns out to be worth Rs 1.2 lakh.
Over 20 years, it balloons up to Rs 5 lakhs, and over 30 years it swells up to Rs 17.6 lakhs!
We don’t lose our sleep
Over a shorter period markets tend to be volatile. Even after investing consecutively for 36 months, one may see that one’s portfolio is in red. If the invested amount is small, then a new investor can deal with this situation and not feel stressed about it.
If a new investor starts a SIP with a larger amount in a small-cap fund during a choppy market, the variance in a portfolio can cause the investor to chicken out and withdraw his holdings much before the magic of rupee cost averaging plays out
As the performance of a mutual fund in which an investor has started a small SIP improves, she acquires confidence to invest higher amounts.
Suitable for risk-averse investors
Some individuals only prefer saving in fixed income or debt instruments. Due to certain reasons, such investors prefer the security of lower returns rather than the opportunity presented by equity funds to beat inflation.
If they haven’t tasted the growth that an equity-based instrument brings in, introducing them to the same through small SIPs is a great idea.
Some investors may not stay through the course even though the monthly invested amount is tiny. Whereas some may realize the benefits of investing in equity-based instruments as well and may seek to increase the SIP amount.
Continue to invest in case of unforeseen circumstances
As the size of an investor’s portfolio increases, her confidence in the wealth-creating ability of mutual funds increases.
After experiencing market volatility and continuing investments regularly, the investor begins to appreciate the process of creating wealth by investing through small SIP when the mutual fund portfolio starts growing.
This offers a huge boost of confidence to the investor which may result in the investor bumping up her SIPs.
Acquire confidence to invest more over some time as our portfolio grows
We live in an uncertain world. Incomes have improved but job security, especially in private firms, is a big question mark. There may also be health-related situations that may cause an individual to stop working for a while.
We are also living in a time when individuals wish to make the most out of their lives. This includes taking a sabbatical to travel or quitting a well-paying job to start up.
During such scenarios, one may not receive a regular flow of income. Or the size of income could reduce. Small SIPs can still be kept going as they may not cause a huge dent in an investor’s pocket during such uncertain times.
Easier to develop the habit of financial discipline
Financial discipline is rarely something we are born with. We have to work on it. Let us take the example of goal-based investing. A newbie investor may start a small SIP to invest a certain amount over 5 years to achieve a goal.
However, after 18 months, this individual may be tempted to buy a new laptop and would be falling short of some amount.
If this individual decides to redeem the corpus which has been created so far, he may not only lose the opportunity of creating more wealth but would also fall back on his efforts to achieve his goal.
Therefore it is critical to adhere to financial discipline when it comes to investing. Starting small makes it easier to get used to this. It is worth creating a habit of putting aside a small amount.
Over some time, this would make it easier to deal with following a discipline of investing larger amounts.
Claim tax benefits
Investors who are starting their journey in the world of investment can look at ELSS to not only help achieve financial goals but also save tax. ELSS stands for Equity Linked Savings Schemes.
ELSS is riskier than the fixed income alternatives available for tax-saving under section 80C but has the shortest lock-in period among all these options. It also offers the potential for growth via equity.
Conclusion
Rome wasn’t built in a day. And neither is a huge corpus that can offer financial freedom. One can begin investing modestly and then slowly keep increasing SIPs without being influenced by noise.
Once an investor signs up to ride several market cycles then there is no looking back.
This is because the investor begins to understand the importance of continuously investing during good times as well as bad. Small SIPs are bound to do wonders for our financial health.
