Investment strategies to follow before you turn 30

To ensure that we are financially secure when we grow old, it is advisable to start saving and follow some financial strategies as early as possible. Experts say ’30s are the time to make some important financial decisions to reach the various financial goals in life. All of us want to be financially secure and well off by the age of 35-40, but for that, there are some important financial decisions that we need to take in advance.

The right approach towards creating wealth, and ensuring that you are financially secure is to have a clear financial goal. After having a clear goal, you need to start early and save for it.

To make sure you are on the right track with your money, here are some investment strategies for you to follow:

1. Make a monthly budget and then spend: Most people in their 20’s start earning and spend it all without a proper budget. They also get into unnecessary debts and then keep rolling it, instead of getting rid of it. This is mostly seen with credit card debt. To help with the situation, experts say one should try to list down all income and expenses every month, then plan a budget accordingly. This way after setting aside money for utility bills, one can slowly clear off one’s existing dues and make provision for bigger loans in the future with a good credit history.

2. Make an emergency corpus: Making an emergency fund for yourself will help you from various events like accidents, illnesses, or job loss and pay cut during a pandemic. Now we all know that these events can occur anytime, and for that, you will be adequately prepared. Hence, according to experts, it is ideal to create an emergency fund, equivalent to 5 to 6 months of an individual’s living expenses. To start with, you can aim to keep aside 2-3 month’s living expenses in the contingency fund and then slowly increase the amount, with the increase in your income.

Note that, your emergency fund should be in an easily accessible place (liquid in nature) at short notice. Experts suggest investors can look at options such as savings bank account or liquid mutual funds for emergency corpus. Having said so, you can also look at liquid and ultra-short term mutual funds as they are more tax-efficient in nature.

3. Invest to save tax: This is considering that you are working and earning. Firstly, assess your tax liability and take advantage of tax deductions available under Section 80C of the Income Tax Act. With proper tax planning, you will be able to reduce your tax liability, along with saving more to invest in your other goals.

According to experts, one of the best tax-saving options is Equity-Linked Savings Schemes (ELSS), which is an open-ended equity mutual fund. Under this, investors can avail of deduction under section 80C up to Rs 150 lakh in a financial year.

4. Opt for good health and life cover: Before opting for a life cover, note that life insurance is not to be treated as an investment. Experts say insurance and investment should never be mixed. Before choosing life insurance for yourself, you need to make sure that you are earning and have a family dependent on you. If so then assess and opt for the right life insurance term cover. Term insurance covers are pure life insurance plans that cover the policyholder’s life for a high sum assured at a lower premium.

With costs of health care and medical on the rise, and medical crisis such as COVID-19, any disease or illness without sufficient cover will have you dip into your pockets. Hence, it is necessary to have a separate health insurance plan. With various health covers available in the market today, opt for the right cover for yourself, depending on your needs. Note that, you have to consider policies that include treatment for COVID-19 and OPD.

5. Invest in your short-term and long-term goals: Planning for a goal makes it so easier to achieve, be it a short-term or long-term goal. Short-term goals include an annual vacation, or buying a car or any asset in the near future. For such goals, you can look at liquid funds or arbitrage mutual funds, instead of keeping your money in a savings account. Note that, mutual funds are more tax-efficient than savings accounts. There are different mutual fund options available for different time horizons. For instance, experts say one can look at liquid or ultra-short term funds for goals to be achieved within a year, and arbitrage funds for goals to be achieved post-1-year time horizon.

On the other hand, long-term goals include buying a house, starting your own venture, marriage, retirement, etc. To start with first, determine how much you will need for a goal and then save for what is required to achieve the goal. As an investment strategy, you can look at fixed monthly investments such as – SIPs (Systematic Investment Plan) in mutual funds. Keep in mind that for long-term goals, the earlier you start investing, the longer time your investments will have to grow, and the more you will benefit from the power of compounding.