The year 2020 isn’t just a new year; it also marks the end of a decade and the beginning of another consequential one. The next decade will have a monumental impact on all the facets of our lives, including our finances. We need to set clear plans and execute them to perfection to extract the most out of the next 10 years and accelerate our journey to achieve financial freedom. With drastic changes in cost of living expected in the next decade, how should you manage your money and what are the financial tips you should follow? We have some pointers.

Identify long-term financial goals

Correctly identifying your long-term financial goals is very important as you step into the new decade. So, whether you are in college, in a job or close to retirement, you need to identify your goals carefully. For example, college-going individuals of today would be starting a career in the coming decade, so they should prioritise repaying their education loan, building a contingency fund, saving money for their future, getting a life insurance policy and focusing on buying a car or house.

Similarly, people who are in the middle of their careers should focus on goals such as to repay their home loan quickly, stay adequately insured, and build up a fund for their children’s future. And those about to retire should focus on the financial goals pertaining to becoming debt-free and retiring with an adequate corpus which can help them maintain the same standard of living when their income sources deplete.

Invest keeping inflation in mind

The average inflation in the last decade had been lower than the inflation in the decade previous to that. In the next decade, the average inflation is expected to remain slightly lower than this decade. So, the rates in fixed interest instruments like PPF, bank FDs, etc., are expected to fall. The equity market is expected to become more stable and robust. So, while investing your money, you should factor in the impact of inflation on the returns. Diversify your portfolio adequately and take investment risk strictly as per your risk appetite. You may invest in instruments like PPF, NPS, mutual funds, sovereign gold bonds, ETFs, etc.

The emergency fund plays a vital role in boosting your confidence during an adverse situation. So, whether you are young, in the middle of your career or a retiree, keep an emergency fund worth at least six months of your expenses to take on any kind of financial distress. Keep increasing the size of the emergency fund as your cost of living and responsibilities change in the future.

Fine-tune your insurance plans

Depending on your age and career stage, you should start or increase your crucial insurance plans. If you would start a career in the coming decade, you should get life and health insurance policy with adequate risk cover. However, if you already have these policies, you should fine-tune your insurance policies. Medical inflation is highest in comparison to other forms of inflation, so it’s important to stay adequately insured and avoid big expenses related to hospitalisation. Similarly, you should be ready to save dependent family members from financial hardship by getting a life insurance cover of at least 10 to 20 times your current annual income.

Rent or buy a house? Make your choice

Housing is going to be a big challenge in the next decade because the land bank is limited, and with a growing population, property demand is expected to increase substantially. So, make your choice now, whether you would be comfortable living in a rented home or would like to buy a home. In either case, make it a goal and start channelising your savings and investment returns to achieve your goal on time.

Plan for your children’s higher education

Higher education costs have seen a major spike in the current decade and things are unlikely to change in the next one too. So, plan to raise an adequate fund for your kid’s education as early as possible in your career so that you can avoid taking a loan at the end of your career. Set a separate financial goal to that end and consider regular investments in tools like PPF, SSY, SIPs, etc.

The author is CEO, BankBazaar.com