NEED OF STEADY INCOME & INVESTMENTS BY THE TIME ONE REACHES IN THEIR 30’S

By the time one reaches the mid-thirties, one should have mastered the art of spending wisely. This week’s blog is about all those people who wants to be in charge of their money, but is not sure about how to go for it.Not all of us find our calling or end up with the jobs we love doing. One often works hard to keep his job and earn a good performance rating at their workplace. In the group of thousands of workers and employees in the organization a person doesn’t know what his career path would be. Many of us don’t question things that happen to us- if there is nothing wrong with the job, it is fine is the attitude. Then we get monthly pay cheque and taking risk with it is not seen as a desirable option. To have achieved a stable and steady income is a good milestone for the mid-thirties. 

What not to do ?

Here I will be pointing out the problem areas which act as constraints in achieving a financial discipline.The first problem is Credit card. Earning money & being independent means there is freedom to spend. Spending on things that matters most is gadgets, eating out, travelling, hanging out with friends. Then marriage happens and demand on income grows to accommodate gifts, relatives, rituals etc. These all-growing expenses forces to borrow routinely on credit card, even after realizing that it is an expensive option but is convenient and discreet. So, making choices and prioritizing expenses is a skill that is learned the hard way. Therefore, one should have mastered the spending process and find smart ways to sidestep expenses that one would regret later.The second problem is EMI. There are EMI’s for Home, Car, Gadgets and what not. A loan restricts the amount of disposable income and makes daily necessary expenses difficult. It makes a dangerous sense to spend most of the income on EMI’s and manage household expenses on credit card. You may get loan and funds based on your Income but only you know your expenses. After taking into account the mandatory expenses of household, not over 50% of your remaining income should be allocated towards EMI. By the time of mid-thirties at least 20% of your income should go towards savings. No, EMI for the house cannot be counted as savings.The third problem is running out of cash every now and then. I know one of my friends who has a second job which he does on weekend which means he has two jobs but still there are times when he returns from a holiday and found that there wasn’t enough money after such a large expense. An unexpected expense for a wedding, illness of near and dear ones or requirement of funds from parents, put a young family out of cash. This is the direct result of faulty asset allocation. The biggest asset is house and one lives in it. It takes a huge chunk of EMI and earned no income. Let the first house be basic one and do not overdo the first house. You can have another if your income is growing and steady. The lower EMI leaves space for other financial assets such as Mutual funds, shares, Bonds, etc. 

What to do ?

To have liquid assets enables you to borrow against them at lower rates, so liquidate them when needed.Saving early, even if it is a small sum, is a great habit. A Rs. 1000/- SIP may seems to be small, but after 10-year period, it would represent a tidy sum available as backup.By the mid-thirties, your house should not be over 60% of your assets. 

You need to get that proportion to 30% or lower by the time you retire in the next 30 years. Greater the amount in assets that can easily be sold, accumulated and managed, better your financial lives will be.Until all the above assets are fully built Insurance is the protection that protects your goals. Begin with a simple formula of 20 times your current annual expenses as your target asset size.All in all, by the time you hit the 50s and reach your peak earning capacity, you will be satisfied by your decisions of what you have built.

Disclaimer :
The views expressed herein are personal.