Many youngsters in their mid-20s and 30s face the dilemma of not being able to match their outgoing lifestyle with their finances. Most people who live an active, socially confident life, often find themselves in the predicament of not having just enough money. They don’t know how much to save or where to invest their savings. Neither they are aware of how to devise a financial planner for themselves.
Eventually, the twin behavioural characteristics of procrastination and ignorance lead individuals to make wrong investment choices, which in turn, results in unmet goals, financial insecurity and flawed portfolios later in life. To avoid any such instances, here are few tips to help you manage your finances, especially if you love to party hard and live life harder.
Don’t be Financially Clueless
By the time most of us turn 40, there are certain milestones that we would gladly want to tick off from the list. These may include life goals such as getting married, buying a home or putting your child into elementary school. However, there’s one thing you wouldn’t want on your list, and that is, being unsure of your finances.
By the age of 40, you cannot afford to be financially clueless, especially when you are pretty much leading an active, outgoing lifestyle and retirement is just around the corner. Instead, you need to start building a solid financial foundation for yourself. Pay off your credit card debt, stock up your emergency fund and start with your retirement savings. Everything else (homeownership, travel) can come after.
Divvy Up Your Monthly Budget
The crux of financial planning is knowing how much you need to save and how much you can spend. Since you spend most of your income to support a flamboyant outdoor lifestyle, you need to carefully plan and divide your monthly budget into expenditures and savings. Look no further than the 50-30-20 rule. This rule would help you split your monthly budget into three components:
- 50 percent of your income, which is reserved for mortgage, groceries, rent and other essentials
- 20 percent would go to financial priorities such as your debt payments, retirement contributions and savings
- 30 percent of your income would be allocated for your lifestyle choices and outdoor lifestyle
Have a Retirement Corpus in Mind
You need to crunch some numbers to know how much your ideal retirement will cost. You can take help from the retirement calculators that are available online to put a number on your post-retirement lifestyle and liabilities. Once you have a corpus in mind, you can start saving immediately to get there, instead of waiting for a few more years to get your finances straight. With efficient planning and a large enough corpus, you can make sure that you continue to lead a lavish, outdoor life even after retirement.
Invest in an Online Life Insurance Plan
Buying life insurance is not a luxury anymore; it has become a necessity. Therefore, once you have divided your budget, you need to purchase an online life insurance plan from the saved amount. With a term plan, for example, you can make sure that your family is financially secure even when you are no longer there to support them. On the other hand, buying a ULIP would help you make sure that the money you saved, immediately starts to work for you, while you remain protected from all eventualities in life.
Life insurance plans also offer you tax benefits up to Rs. 1.5 lakhs under Section 80C of the Income Tax Act. Regardless of the plan, you choose, buying life insurance online is both quick and hassle-free. You can also choose to pay premium online to make sure that your insurance policy doesn’t lapse on the renewal date.
Save for Emergencies
In our 20s and 30s, we are so caught up in the thrill of making money and eagerness to buy things that we forget to prepare for emergencies. Be it any medical eventuality or immediate financial support needed by a family member; such emergency situations demand that we need to plan our finances smartly and be ready for any sudden expenses that may crop up. So, even before you proceed to start saving for short-term goals, you need to create an emergency corpus, which should be equivalent to 3 to 6 months of your household expenses.
This amount should also include any insurance premium obligations and loan repayments. You can also invest this amount into an instrument that is not subject to market volatility and is easily accessible. Therefore, you can put this money into a liquid fund, short-term debt fund, or a sweep-in bank account.
When we are young, life seems to be a rollercoaster ride. Especially when we are finally able to earn on our own, we are thrilled by the possibility of living all those dreams we had since childhood. That said, many of us get so engrossed in a life of procrastination and social flamboyance that we forget to prepare for the implications of financial emergencies. Be it a medical emergency or sudden loss of a job; you will need to align your finances and be ready for contingencies.