A lot of young people think that they have lots of time to meet their life goals. However, owing to the current world situation and ever-changing scenarios, be it financial or geographical, one needs to be much more active in investing.
After understanding the importance of investing and the financial steps everyone needs to take, here we have compiled a list of a few financial mistakes that one should not commit in one’s 30s for a more relaxing retirement and, more importantly, peaceful life.
Financial steps one should take:
1 – Not starting SIPs
SIPs or systematic investment plans are the best way to get your investment double or even triple in a short amount of time. It is such an investment that one should start at an early age of 25, which is when a person starts earning. SIP when started early and continued for a long term can result in huge savings, which is otherwise difficult to do manually.
For example, when you are investing directly in the stock market, you can remove or sell your equities at any time you want, so you might not give your assets the required time to grow. While in SIP (mutual funds), you stay invested for a long period, thus giving enough time for your funds to grow. SIPs allow you to stay disciplined with your investment and take emotion out of the game.
If you are planning to start an SIP, know that there are different types of funds you can choose from – small-cap, large-cap, mid-cap, debt funds, money market funds, etc. Depending on your age and risk criteria, you can have in your SIP portfolio a mix of different types of funds.
2 – Not Having a PPF Account
A Public Provident Account (PPF) account gives you fixed interest over the period at nearly zero risk and with tax benefits. The interest rate of the PPF account varies between 7% and 8% and is adjusted every year. Also, on your PPF account, you get full tax benefit, i.e. your investment, the interest, and the lump sum received on maturity, all are tax-free. This is one of the biggest benefits of PPF, which also makes it an ideal choice for someone looking to save tax.
Any Indian citizen can open a PPF account with a bank or post office. The maximum contribution limit is Rs 1.5 lakh per year, the amount beyond which will not be tax-exempted. The maturity period for a PPF account is 15 years, however, you can choose to get it extended for five-year periods and continue to receive interest on your deposits.
3 – Not Having Term Insurance
Term insurance is a life insurance plan that covers your life against death. Pure life insurance is what you should be looking for, which pays your nominee only when you die. The benefit of buying term insurance at an early age is that you can get a large cover at a very small premium. The later you buy term insurance, the higher will be the premium based on your age and health status.
4 – Not Having Health Insurance
While term insurance is a product for after you’re gone, health insurance will assist you while you’re alive and whenever you need any monetary help in case of a medical condition. Hospital expenses in case of a serious medical condition can deplete your savings sooner than you can probably think, which is why having medical insurance is one of the best financial decisions you can make in your early 30s.
Same as term insurance, the medical insurance premium will be higher when you buy it at a later stage in life, which is why it should be purchased at an early stage in life. Even if your employer offers a medical cover, you can consider buying additional medical insurance in case the employer’s cover is not sufficient.
5 – Making Impulsive Investments
Many people at a young age end up investing in products or assets that they do not fully understand. Most times, they fail to ask the right questions to their agent and end up paying more for a product that they could have otherwise purchased at a lower price. For instance, purchasing direct mutual funds can help you save 1-2% per year in agent’s commission.
6 – Saving, Not Investing
Many youngsters confuse investing with saving. These are not the same thing. If you are only saving, say in a bank account, the maximum you can make per year is 4 percent, which is not even sufficient to beat inflation, which means the value of your savings will only decrease with time. Investing in the market will help beat inflation and grow your money.
(By Amit Gupta, MD, SAG Infotech)