While you are happy splurging on clothes and jewellery in your 20s, you start looking at bigger investments in your 30s and 40s. Some of your financial goals might be long-term such as retirement plans and some are to meet immediate requirements.
In 20s and early 30s
Most people in their 20s and early 30s have minimal obligations and responsibilities. Getting life insurance, health insurance and critical illness cover will not just ensure financial support for self and family, but also provide you with tax benefits. Build a contingency fund worth 9-12 months of expenditure, which would support you through unforeseen circumstances, in case the income flow stops for some reason.
As the risk appetite is high at this stage, buy shares, equity mutual funds, etc. Other investment instruments such as PPF and ELSS could be explored for tax benefits. The investment portfolio should focus on high returns with moderate to high risk instruments.
In mid 30s to 40s
Once you hit the mid 30s you are likely to be have stabilised in your career with a small to medium corpus, a contingency fund and an insurance cover. However, remember that retirement is not a distant idea and your expenses are reaching heights. If you have not bought a house already, you must pay for the down payment with the available corpus and take a home loan for the rest of the amount.
Work towards paying off existing loans and credit cards bills. Invest in equity fund-SIP with large cap and blue chip schemes. For meeting short-term financial requirements, consider investing in recurring deposits.
In 50s to 60s
By now, you must have raised funds for your child’s higher education and marriage, and clearing the mortgage must be a matter of a few months. The top priority at this stage should be locating all funds and savings with banks and other financial institutions and putting a retirement plan in place. Clearing all loans and debts before you retire is a must. While you get ready for retirement, assess your health insurance plans and increase the cover if needed. Make sure your post-retirement goals are set.
Life on retirement
This is a phase where you are free from several responsibilities and expenses are also significantly low. The biggest challenge at this stage is to stay ahead of inflation. Invest in safer instruments with predictable returns such as large-cap mutual funds and refrain from schemes with long lock-in periods.
The writer is CEO, BankBazaar.com