Financial planning is one of the first things that you must chart out the day that you start working. In today’s world, dreams and aspirations come at a price. Your goals, like buying a house, a car, securing your child’s education, they all come at a significant cost. And without any financial planning, you may find yourself in a tough situation when the need arises.
There is also the factor of your changing financial needs. Your financial requirements when you are 40 years old will not be the same as those when you were 25 years old. So, your financial planning also needs to evolve to keep up with your changing financial requirements.
Therefore, it is important to understand how you must invest at various stages of life so that when the need for funds arises, you’ll already have a corpus ready. All you require is a vision for the future.
For people in their 20s
People in their 20s are mostly individuals who have just started earning. They’re usually single, do not have many responsibilities and dependents. They prefer a fast paced life and have a higher risk appetite. This allows them to be aggressive in their investments. Most of us at this age do not have any financial goals, and hence this is the best time to do so.
Financial Plan: Persons in this category can afford to invest majorly in equity funds. At this age, equity allocation of 70% and the remaining in cash and debt instruments is ideal. At this age, you must start building an emergency fund and develop a good credit score. Getting good health insurance is also best done at an early age.
People in their 30s
This is the time when you have a clear vision of your financial goals. And you can start planning accordingly. Buying a house, a car, marriage expenses etc are some of the costs that you’ll have to bear in the next few years, so you must plan immediately.
Financial Plan: In this category, you have the advantage of a steady income and thus you can still be slightly aggressive when it comes to your investments. Slightly reduce your equity component to 60 %, keeping the rest in debt funds. The major goals that you must start planning for are buying a home, and starting a fund for your child’s education.
People in their 40s
At age 40, you’ll have more responsibilities like taking care of parents’ medical costs, children’s higher education, and improving your lifestyle to keep your family comfortable. This is the time when you must look towards stability and thus be moderately aggressive in you reinvestments.
Financial Plan: You can start by reallocating your portfolio so that 40% is in equity while the rest is in safer, fixed income instruments. At this age, you must look to upgrade your health insurance cover, and review your retirement plan. You can also look towards a savings plan at this stage to secure your family’s future.
People in their 50s
At age 50, you’re in a position where you know that you’ll be retiring soon, so all you planning must go into securing your retirement corpus. You’ll also need funds for your children’s college education or marriage.
Financial Planning: Start by reducing the equity component of your retirement fund and converting it almost entirely into debt funds. That way, the corpus that you so painstakingly created won’t be affected by equity fluctuations. Your goal must be to clear all debts and ensure that your life post-retirement would be worry-free.
Final Word
To keep up with the changing dynamic of your life, you must keep reassessing your financial planning. Use the above guide to plan your savings according to your changing financial needs.