There are many reasons why clients may not undertake financial planning on their own in the initial years of their career, including: a) Thinking they have insufficient income to warrant planning; b) Assuming their financial situation is in good order; c) Putting off what is complex and worrisome; d) Not wanting to consider unpleasant events such as death, disability or unemployment, or e) Thinking financial planning is expensive. All these assumptions are false. It is the failure to plan that can turn out to be expensive.

Amar Pandit

At best, people do some rudimentary form of tax saving by buying insurance policies, tax-saving mutual funds or Public Provident Fund. Some also end up buying a house. But most of the decisions are driven by the desire to save income tax. So what should people in their 30s do?

First, ensure that you have a solid base, which means planning for any contingency, including disability and death; critical illnesses cannot be ruled out. So, depending on the consistency of income, one must at least have 4-6 months’ worth of expenses in fixed deposits, floating rate funds or investments against which overdrafts can be taken. Additionally, you need to ensure that you have sufficient medical cover for your dependants.

The next thing to do is to ensure that all your liabilities and the future income needs of your family are covered through a term plan with a sizeable cover. Also opt for a critical illness rider as part of your term plan or take a separate critical illness plan to cover major illnesses.

Spending is like eating. Just like junk food affects your health, junk spending affects your wealth. It is the efficient use of financial calories that translates into wealth.

Investing is like cardiac fitness, as it helps increase your longterm financial strength and ensures a robust financial life. Instead of having a spending budget, the best strategy is to have a savings target in place: to save and invest at least 25% of your gross income.

For many families in this age group with double incomes (both husband and wife working), there is often a lot of savings but it just lies idle. It’s important that you channel your saving into appropriate investments aligned with your asset allocation. This is probably the most important decision you can make as an investor in achieving your financial goals.

According to experts, people who have written financial plans in their 30s and follow them diligently, end up making three times more money than those who do not have a financial plan.

Amar Pandit, certified financial planner. He can be reached at amar.pandit@gmail.com.