The most important goal in wealth creation is to achieve financial freedom. This “will” to be free comes to those who are willing to learn and win. Ambitious 30-year-old professionals have the potential to seek a life without financial problems. To start, start now, there is no room for inertia. Your next five steps to wealth building could be the following.
Step 1 – Set your goals – short, medium and long term
As cliche as this step may be, defining your goal is actually a soul-searching journey. Write down your immediate goals. Define the objective for the next two or three years and for the next seven to 10 years and foresee the retirement phase of your life.
For digital native generation, choose an app that will simplify your goal-setting process. Invest some time and effort to research the right digital trading app. The app is your partner in your wealth building journey.
Investing apps or financial apps are tailor-made to make your life easier and kick-start your goals. Go to the next step once you have defined your goals.
Step 2: Assess your income, expenses, and debts
In a nutshell, assess how much you’re earning versus how much you’re spending. Get in the habit of creating a budget for the month that needs to be closely monitored. Once again, go digital by choosing an app that allows you to create and track your budget efficiently and seamlessly. Discipline is the key here.
Step 3: Manage debt wisely
Professionals in their 30s will have different priorities and will consider taking out a loan at some point. Investing in a house or buying a car each has a different requirement. Banks, fintechs, and non-bank financial companies (NBFCs) have a wide range of financial solutions that can make buying a home or car a smooth experience.
- Choose a smart and simple loan option that doesn’t add stress to your repayment cycle. Do your research, compare the various options available, understand the details of the offers, such as processing fees, 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 paying each and every installment on time so that you can get a very good credit score.
- In short, be smart and wise about the loans you choose. Also, when you’re in debt, don’t overindulge in other unnecessary expenses. Frugality is a virtue.
Step 4: Short-term and long-term financial goals
Classify your financial investment now into two main categories (or even three) and create an asset allocation plan for each.
Reserve an amount for emergency needs only. Make sure the stated amount is not used unless there is an emergency only. Do not succumb to any temptation. One can open a separate bank account just for this purpose.
Plan for the next 12 months
- So to get started, to make your 12-month goal work, create a list of options that will get you there. Take for example, if you want to take this international trip in the next 12 months and the estimated cost is INR 5 lakh, then plan now. Set aside an amount each month and park in a recurring fixed deposit for a period of 10 to 12 months. You can also consider “liquid funds” where the rate of return ranges from 3% to 6%.
Planning for the next 5 to 7 years
Now move 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 take advantage of it. The easiest way to get started is the mutual fund route, start with a systematic investment plan (SIP) and choose a fund with a minimum five-year horizon.
You can also look at the parking of a certain amount in direct actions. Do your research well and don’t get carried away by feelings; remember it’s your hard-earned money. Another option is to invest in corporate bonds of specific companies or even government bonds. The options should fit your goals. Digital apps can also be well used to make your investments. However, when in doubt, seek the advice of a wealth management expert.
Planning for the next 30 years
As the saying goes, “Patience is not the ability to wait, but the ability to maintain a good attitude while waiting.” Every individual has short-term and long-term goals that he wants to achieve, but we tend to neglect the most vital winning strategy for creating wealth: patience. Money should be able to grow on autopilot mode, so you can enjoy the fruits of your own labor.
Here are some options:
- Investments in the capital market can be effective in the long term: The SIP route through investment funds or direct exposure to the stock market is a good starting point. Strategy will differ from person to person based on risk-taking ability, investment horizon, and other commitments. The stock market has a number of options, from sector picks to choosing only blue chip stocks, or even preferring to go for 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, in which the fund manager will choose to invest in various instruments, such as equities, fixed income instruments and also other debt and structured products. PMS is a professional service where the fund manager will customize the portfolio based on the investor’s goals and other important parameters.
- Other asset classes: Investors can also search asset classes such as real estate, gold, or commodities. Each asset class comes with its own opportunities and risks. Again, careful evaluation should be done before investing.
- National Pension Plan (NPS): NPS is an investment opportunity to enjoy a carefree retirement life. The NPS is governed by the Pension Funds Development and Regulation Authority (PFRDA) and has low risk exposure. This system is less risky and is governed by the Pension Funds Regulation and Development Authority (PFRDA). This investment strategy grants 60% of the amount of the corpus as a tax deduction and the remaining 40% is for reinvestment, taxed according to the tax bracket of the natural person. Tax exemption of up to INR 50,000 can also be received on the NPS investment amount under Section 80CCD.
- Employee Provident Fund (EPF): A small amount of a person’s basic monthly salary is set aside to safeguard the employee’s retirement. The employer matches an amount invested by the employee for the employee’s retirement benefit. Depending on the years of work, the amount under this scheme continues to increase and thus at the time of retirement a huge corpus is accumulated.
Step 5: Make Sure
Insurance is another area where one tends to take it very lightly. In fact, those who insure early reap the maximum benefit. Let’s start with health insurance, essential. Choose coverage that covers hospital, critical illness, or even basic charges like outpatient fees. Choose a cover for your family too. A comprehensive health insurance plan is a great help when there are unforeseen medical emergencies and one is saved from paying huge bills. Pay your premiums on time and earn hefty bonus points on a policy if there are no claims.
A health insurance plan rewards the young and healthy with lower premiums and offers to be a part of various wellness programs. For example, certain health insurance companies offer attractive discounts on gym memberships exclusively for their customers.
Another area that is also very important is life insurance. The goal is to ensure that your family is financially secure in the event of an unforeseen death. Here too, it is advisable to start early so that one enjoys lower premiums.
While life and health are important, don’t ignore other facets including home insurance or even travel insurance. The goal is to safeguard one’s financial risk by investing in a product that provides protection against risk. In case of a medical emergency abroad, a travel plan with medical coverage can be of great help.