We all plan about our life and work to be done in future. But often question arises that, if we have a Plan for our future then why we don’t reach our goals…it’s because we have a ‘Plan’ in our mind but we don’t have a formal ‘Planning’ to fulfill that Plan.
Like we don’t take care of our health till we get sick….however we repent for it forever. Similarly, we don’t take care of our finances properly till we get into financial trouble.
There are many things in life which can’t be turned back or get a second chance for improvement, but still we ignore or postpone things, as we don’t get an immediate satisfaction or benefit out of them.
While particularly for financial aspect of life prioritizing goals is very important as time plays a crucial role in reaching our goals & nothing can buy time for us.
“Lost Time Is Never Found Again”
– Benjamin Franklin
Our priorities & concerns changes with time and age, same is with our financial concerns…. but what is more important is to know those financial concerns.
Our idea is to plan for the most important financial steps to be taken decade-by-decade, so as to stay from financial troubles in the later part of our lives….
When You Are In Twenties
India is providing immense job opportunities to young people in their twenties. But in this nascent age most of us are not serious towards wealth accumulation & Financial Planning. At this age we have a perception that we have lot of time & working years ahead of us to start investing.
We will discuss what should be our plan of action during this decade.
1) Start investing early
Younger people don’t think about investments as they are more inclined doing expenses and enhancing lifestyle. However, this is the best time to start investing as even a small amount saved during this age will boost your retirement corpus drastically & may leave space for you to set reach few extra goals.
Let’s understand it with an example:
Suppose, Mr. A starts investing 5000 Rs. at the age of 30 years and Mr. B start at an age of 25 yrs. They get return of say 12% annually.
At the age of 60 years, both the investments will look like this:
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Difference of 1.46 Crore!! Just by investing Rs.3 lakh extra. Am I dreaming?
It’s true. But what made the difference is the extra 5 years that were given to the investment by starting early. The investment got 5 years extra time for compounding.
And if Mr. A need to reach to 3.22 Crores, after starting at age 30 he would have do monthly investment of 9200 Rs. i.e investing 4200 Rs. extra per month for 30 years.
2) Take adequate Life Insurance cover
You must go for a Term Insurance plan to have an adequate insurance cover (also increase your sum assured as your income increases with time). Premium is very cheap when you are young & healthy, so don’t wait till you get older & unhealthy.
3) Take adequate Health Insurance
You should consider buying a Health Insurance policy when you are healthy and fit. Health costs are increasing day by day and a lot of money is washed away, if we get hospitalized for even few days.
4) Pay off your education loan
Get rid of education loan, if any, as soon as possible and instead invest the money wisely for your future.
5) Stay away from credit card debt
Initial earning years are very exciting & we are tempted to enhance our lifestyle & living standard. Credit card further fuels that temptation to buy those things which are not required by providing us instant credit. But you should understand that these things will give you immediate gratification but it will not last longer, rather, by the time you will receive the credit card bill you would have lost the interest in the thing you have purchased.
So it’s better to live within our means & avoid taking debt for doing expenses.
6) Start filing Income Tax return
Young people often don’t file income tax returns on time, as either they are not used to it or might be they think that it’s a tough job. It is also very important to file income tax return on time especially when we need IT refund. Don’t wait for the tax authorities to send you notice to file your return, as it may also lead to penalties. Also it is a very important & credible document when you need loan.
7) Understand basic tax rules & take advantage of them
Young people should learn basics of personal tax rules & guidelines. It will help you in aligning your investments in line with getting maximum tax benefits & advantages.
8) Prepare a Financial Plan
Have a financial plan ready in your closet at this young age, so you are always on track towards your financial freedom. You may take advice from a professional financial planner. The sooner you start, the better you will get there.
When You Are In Thirtees
This is the time when maturity starts knocking door in our life & we start feeling a sense of responsibility towards our future & family. We look forward to living a more stable & settled life.
We would advise you to accomplish any step that you missed in your 20’s that are mentioned in the “When You Are In Twenties” section, as they are the stepping stones towards your financial freedom.
1) Review your Financial Plan (or prepare a Financial Plan, if you missed in 20’s) & check if it’s working
Am I saving enough for my retirement & other future goals? This is the biggest worry of every individual. We are so busy in
our jobs that we forget to plan our future objectively through Financial Planning. People don’t even know what loss they are doing to themselves by not having a proper Financial Planning.
People do not understand its importance, as most of the good things show their effect after few years but we ignore them as we are more interested in those things which generate an impulse or some kind of instant gratification or greed. But these few years of delay can cost us irrecoverable loss due to compounding effect which is discussed earlier in the same article.
2) Plan for Children Education
Start planning for your children’s education as early as possible, as education expenses are increasing at a very higher pace & it will be very difficult to pay for those expenses in future, until and unless it was planned.
3) Ensure optimum diversification
Ensure proper portfolio diversification in equity, bonds, FD’s, Gold or any other asset you are investing. Investments in different assets should be considered in accordance to your life stage goals & need… like each and every spice has its importance in cooking, but according to the need & the dish we are making.
4) You may consider buying a home
If you need a home in future then this will be the right time to plan for it. You can create a fund by monthly accumulation which will help you pay down payment at the time of actual purchase. By timely purchase of home you will be free by the loan well in time & will be having liquidity to fund other life goals or it might help you accomplish other goals which were not set earlier.
When You Are In Forties
By this age most of the people get into the work which they will pursue all through their life. At forties we are settled in our job & are happy with our family. We have more disposable income in our hand, as our income till this age get increased but still our major life stage goals have not yet arrived, like children higher education, marriage etc. We must behave wisely at this age because that extra money to invest can do wonders for us in future.
1) Spend, Save & Invest wisely
It is a very important stage of our life, as at this age we start earning a descent income & also we are neither young neither old, so we are might get trapped in spending extra to fulfill our missed out aspirations. We should try and fulfill our aspirations without affecting our financial planning & investing pattern.
“Spend What Is Left After Saving”
–Warren Buffet
2) Increase retirement plan contributions
If you are earning enough income to fund your goals then you should consider increasing your contribution to your EPF account in accordance to your financial planning. It is a good tax efficient investment avenue for increasing your debt portfolio, but has a limitation of liquidity.
3) Talk to your parents
This is the time when your parents might get retire, talk to them about their retirement plans. If they are lacking somewhere in their retirement planning, try and fund the goal they can’t achieve from your resources.
“Forty is the old age of youth; fifty is the youth of old age.”
– Victor Hugo
When You Are In Fiftees
These are the most important years of your life as during these years you need to rebalance your portfolio against risk. At this age any substantial loss can delay your retirement by few years. You need to be very careful & must start monitoring your portfolio closely.
1) Monitor the asset allocation of your portfolio
You should start rebalancing your portfolio swiftly from growth & aggressive to conservative & defensive. That means that you should increase debt allocation (bonds, FD’s etc) substantially in your portfolio & start reducing equity allocation.
2) Focus on Retirement & post retirement.
You are still left with some time to focus on your retirement aggressively, if you feel you are not on track towards a timely retirement & comfortable post retirement years. Talk to your financial planner and discuss the issue immediately.
3) Fund your Retirement on priority, even if you have to compromise on child’s education goal
Don’t fund any other goal by compromising on your retirement planning even if it’s your child’s higher education. Education loans & scholarships are available to fund for education expenses but it’s not the case with retirement.
4) Prepare for Estate Planning
By this age you should have an estate plan in effect. Estate planning reduces conflicts between family members after we die. We should have a proper estate planning as it reduces disputes, saves time & attorney fees of the beneficiaries. ‘Will’ is the one of the most effective tool in reducing hassles for the one we truly care.
When You Are In Sixtees
At this age we either retire or about to get retired. We should focus on managing the wealth we have accumulated all through these years
in a conservative way. We should understand that the wealth we have accumulated will be enhanced only by the investment decisions we take & the earning will also be created from that wealth only. So stay cautious & focus on protecting your wealth.
If you missed out on Estate Planning then go for it in your Sixtees
1) Continue your focus on Portfolio Rebalancing
We are continually suggesting to portfolio rebalancing, as it is one of the most important criteria in accumulating wealth. We must have a proper allocation to equity & debt according to various factors like age, risk appetite, responsibilities etc. In the long run equity returns surpass debt returns so weightage of equity allocation in our portfolio gets increased, so we need to rebalance it timely to keep the things under control.
2) Stay tax conscious
You should try and take full advantage of all the tax benefits so that your wealth doesn’t get eroded, as by now you are managing a big sum of money. Withdrawals from any product should be tax efficient & should not be done in a hurry.
3) Plan for a second inning, if you want to
As life expectancy is increasing year after year, so are the people who are staying fit & healthy. There are many people who consider working after they retire from their job to get into something they would have loved to do. You should start planning for it beforehand as it may also need some kind of financial support.
When you Retire
You should try and stay away from the work as much as possible and treat yourself as you are on a long vacation. Stay in touch with your Financial Planner to have a close watch & manage the wealth you have accumulated.
Just relax and enjoy your life with your loved ones, as you have worked all through your life only to get this happier & healthy retirement.
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