6 Financial Secrets You Should Know Before You Turn 30

1. Secret of Compounding: 

This is the basics for making money work for you.
What is compounding? Let’s take an example of two brothers Jay and Veeru -

Jay starts investing ₹ 10,000 every year at the age of 25 till he is 35.  He stops investing but does not withdraw the funds.

Veeru starts investing ₹ 10,000 every year at the age of 35 till he is 60.

Considering both retire at 60 and earned interest at 12%, who do you think has accumulated more wealth by then?

Astonishingly, Jay managed to accumulate 2.2 times more money than Veeru, despite the fact that Veeru contributed for 25 years and Jay contributed only for 10 years.

This is the Power of Compounding. Jay’s funds started compounding early, this interest earned further interest and so on. So, start investing early no matter how small an amount, the true power of compounding will make you rich.

2. Secret of Term Insurance: Term Insurance is the purest form of insurance, no one will tell you this. There are agents everywhere trying to sell you investments linked with insurance. Such insurance schemes not only give lower returns but also give you very little life cover. It is recommended to keep investments separate from insurance.

We believe nothing can happen to us, we wish the same. Nothing should. But why take chances? Our loving family should not suffer financially, hence under term insurance, in the event of the policy holder’s death the nominee gets sum assured. No market link, no investment schemes, no settlement hassles and is also inexpensive.

We usually undermine this fact and are inadequately insured or are misinformed by agents. The younger you are, the cheaper is the premium for Term Insurance. You could also avail Tax deduction under Section 80C.

3. Secret of Health Insurance: Medical costs are rising faster than the cost of living. That’s the price we have to pay for better life. Hence, health insurance is a must.

Most of us are covered by our employers, but that is limited. There are multiple clauses under employer provided health insurance covers. Taking a Health insurance which covers your family members and gives a higher cover for yourself is your best bet.

Like term insurance the Health Insurance is cheaper when you are young. If unused, there are unclaimed bonuses added to the sum assured under health insurance. The premium paid makes you eligible for a Tax deduction under section 80D.

4. Secret of Bad Debts: Bad debts are bad for a reason. They secretly eat up on your credit score. Credit score is important as this is what decides if you will get that new credit card with airport lounge access or that much needed loan to buy your dream house.

Bad debts keep on piling interest on interest till you don’t pay them off completely, affecting your credit score. Make sure you have paid in full your outstanding credit card bills or that education loan that you have.

Do not carry the spending mistakes of your 20s into your 30s. 30 is the beginning of the new era of married life, kids, new jobs, big house and your big dreams. Ditch the bad debts for the good dreams and live stress-free.

5. Secret Emergency Fund: As the name suggests, in case of emergency this is what will be rescuing you. A fund to suffice your lifestyle requirement in case of unforeseen emergencies where your income is reduced or stopped.

If you have sufficient health cover and life cover, the recommended emergency fund could be 6 months of your monthly salary. Imagine you want to quit your job to find your passion or you could be just between jobs or God forbid you are bedridden for a while due to an accident or illness, this fund will be your saviour.

This emergency fund should be kept secret and not to be used to gift yourself from time to time. The fund itself is a gift to you.

6. Secret of Defining Your Financial Goals: This is an open secret we all know, unless we define our goals it is very hard to achieve. Still very few of us actually adhere to it.

Segregate your financial goals as per priorities this will help you to decide if it is a short-term goal, a medium-term goal or a long-term goal. Since you have understood the power of compounding and are keen to start investing early you can provide for each of your financial goals.

You can then systematically invest for your big spends like buying a house, kid’s education and marriage, as well as your short-term goals like going on your dream vacation, buying that new car, etc. Also knowing how much you need at the time of retiring and saving for it will make you feel secured of your future.

These 6 secrets will safeguard your financial goals as well as of those of your family members. The purpose of this article was to create awareness and inculcate healthy financial habits at the peak of your youth. There are definitely other financially savvy things you can do in addition to the ones mentioned above.

If you have any queries on how, what and where to invest, as it is never too late to start, kindly write to the author Akshay Suvarna at akshay.suvarna@ymail.com. Visit www.mymoneymanager.net to know more about financial planning and get a customized financial plan for yourself.