To Avoid In Your 30s

To Avoid In Your 30s

Ideally, an investor should start investing as early as possible in order to create and accumulate great amount of wealth which will aid him or her to reach financial goals effortlessly. The article highlights the most common mistakes that individuals make when it comes to building a corpus

As a person progresses in his life he goes through stages where he first depends on parents and as he starts earning, he slowly gets responsible and starts a family. However, as this happens, he also turns from a phase of being financially dependent on parents to being financially independent and being responsible. He moves from being dependent and goes to a point where people depend on him. Besides, 30s is the most critical period of an individual’s life as he is on his career path, is probably married and may have also become a parent – all of which calls for stability and regular income. In this period, he has greater responsibilities as compared to other stages of life. So, it is crucial to have an adequate financial plan in place to avoid financial stress which might hamper his current lifestyle or lead to compromises. Therefore, a person in his 30s should not commit the following mistakes:

1. Not Possessing Adequate and Clear Financial Plan
Ideally, an individual should start planning and setting his financial goals along with saving for the same as soon as he starts his journey of earning. In case an individual hasn’t set his financial goals and planned a strategy, it is the time to take some effort and look at the same in order to avoid any financial stress in the future. Financial goals can be short-term, medium-term or long-term and he should allocate his funds accordingly. Not planning your finances is one of the major mistakes committed by people as without any goal-based investing you will be like an aimless ship which won’t reach its required destination. Establishing your specific financial goals, whether long-term or short-term such as buying a car, house, mobile phone, planning for retirement or children’s education, marriage, etc. will aid you to outline your goals and reach your target.

2. Avoiding and Delaying Retirement Savings
Generally, retirement planning is avoided as it may sound unnecessary to invest for the same at such an early stage of life. However, it should be one of the major parts of your financial plan. In an ideal financial world, retirement planning should be started as and when you commence your earning journey, as it will help you create a huge corpus which will enable you to continue and enjoy the same standard of living during your sunset years. A majority of the population think retirement is decades away and so where is the need to plan right now, due to which they end up with no corpus or very less corpus during their retirement. If an individual hasn’t started his retirement planning in his 30s, he must start planning for his retirement immediately before any more time is lost.

There is a need for retirement planning because the financial situation in the country has changed in the last few years in a manner that it will be difficult for one to maintain a decent standard of living through current means. Besides, advancement of technology and improvement of treatment in the medical industry has led to longer life span. Now let’s look at three different scenarios where we will look at what will be the corpus of an individual if he had started investing for retirement in 20s or 30s and what if he delays further:

In case an individual invests Rs 5,000 till the retirement age of 60, at the rate of 10 per cent per annum, what would be the corpus he will accumulate in the following three cases?

3. Not Keeping Track of your Spending
Today’s generation is fascinated about various materialistic things they see around them such as branded clothing, new mobile phones, cars, etc. As an individual starts earning, he feels like spending money for such luxury items and may end up using the entire salary in satisfying such desires. Needless and mindless spending is the biggest hurdle in wealth creation. In the 30s, one should be very careful and mindful about expenses. An individual should track his cash flows and create a monthly budget in order to avoid over-spending. Nowadays there are loads of mobile applications available wherein you can manage your expenses by creating a proper budget and keeping control over your cash flows.

If you spend more and save less then you are in trouble as you might end up in financial stress. So, if that is the case, you need to review your cash flows, budget and make changes in the way that you turn from a ‘spend more, save less’ to ‘spend less, save more’ situation. Let’s look at both situations where an individual spends more and saves less as well as spends less and saves more. If an individual is of 35 years and he earns Rs 40,000 per month and saves some proportion of his salary at the rate of 10 per cent while spending the remaining on his personal and family needs, what would be the outcome?

As is evident from the table above, if you save more, you can accumulate a large corpus and if you spend more you will have to give up on your wealth creation. If an individual spends 30 per cent and saves 70 per cent then he would have created Rs 33,04,832.33 more than an individual spending 70 per cent and saving 30 per cent.

4. Avoiding Insurance or not Holding Adequate Insurance
Insurance planning is the one of the crucial parts of financial planning. An individual is surrounded by various risks and uncertainties while insurance is an instrument where an individual can protect himself financially in case of any mishap. Fundamentally, insurance is the mode to financially compensate for losses that life throws at people. Insurance can be used as a tool to shield an individual financially against potential risks like travel accidents, death, property destruction, diseases or emergency admission in hospital, fire mishaps, etc. If an individual does not possess an adequate insurance he or she might end up with financial stress.

"If you spend more and save less then you are in trouble as you might end up in financial stress. So, if that is the case, you need to review your cash flows, budget and make changes in the way that you turn from a ‘spend more, save less’ to ‘spend less, save more’ situation."

In the 30s an individual has greater responsibility as compared to his 20s as in that period he has the responsibility of taking care of his family too. If in case the same individual unfortunately dies then his spouse and children would be left with no support. Therefore, if you are a responsible parent then you should possess adequate amount of insurance. Purchasing adequate insurance cover is very important; under-insurance as well as over-insurance can both be risky. Under-insurance can lead to great financial stress in case of unfortunate events. On the contrary, over-insurance can lead to higher monthly premiums, which may hamper your current finances. An individual must possess life insurance, health insurance, motor vehicle insurance, personal accident insurance and home insurance.

Conclusion
To conclude, 30s is the period of all responsibilities such as household expenses, raising and educating the children and liabilities such as home loan, car loan, etc. So, in order to avoid any financial burden an individual should majorly avoid the abovementioned mistakes. Ideally, an investor should start investing as early as possible in order to create and accumulate great amount of wealth which will aid him or her to reach financial goals effortlessly.

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