Your age and financial planning are linked

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Rajesh looks at his younger brother Abhishek and asks him why does he look so happy? Abhishek says that its beacuse his iPhone 14 Pro is about to arrive. Rajesh asks him didn’t he just buy a new phone 6 months ago? Abhishek tells him that his previous phone had become old. Rajesh then reminds him that last month he had also bought a smartwatch worth Rs 25000. He tells him that now that he has got a job and he has started spending a lot. Abhishek tells his brother that a man earns only to spend and that if he doesn’t spend now then when will he? Rajesh advises abhishek that he can spend but at least he can also save something. Abhishek ignores Rajesh saying he has his whole life to save.

Abhishek belongs to the age group of 20 to 25, mostly the youth who have started out with new jobs believe in spending rather athan saving. And that they have thier entire life to save. Their perception that since the salary is less how much can they save. Now this is where the youth make mistakes and instead of saving they spend all the money, the brunt of which has to be borne in future. As the age increases, there is a need for change in financial planning but why is there a need for change, let’s get to know.

A person begins to earn in his 20s and most of his earning goes towards eating, drinking, living, travelling, fulfilling hobbies and in some cases repaying education loan. Well, in reality financial planning starts from this age itself. First of all, you should aim for your own education upgradation. Even if your salary is not high, you should save 10-15% of it so that you can take up higher studies and earn more. If the financial goal is 5 years or more, invest in equity or balanced fund. If you have short term goals like travelling or buying a car or a bike, then you can invest in debt.  In simple words Asset allocation is all about investing your money separately in equity, gold, bonds or other such asset classes. Also, gradually build up an emergency fund equal to 6 months salary, which will come in handy in difficult times.

In the 30s, along with earnings, responsibilities too increase. With marriage and children, expenses increase. New goals of buying a house and a bright future for the child come up. The age of 30 to 39 years is very important. One who understands the importance of investment in this age, his financial position is always good.

With increasing responsibilities, first take term and medical insurance so that the family’s financial security remains intact in case of any untoward incident. Also try to reduce the expenses. For child’s education and buying a house, make gradual investments. To buy a house, you have to see how big a house you can buy so that the rest of the financial goals are not compromise. At this age you should think about retirement planning, even if you make a small investment. If you invest in EPF or NPS, do not withdraw this money while changing jobs.

By the age of 40 to 49, your salary would’ve increased upto its maximum extent. Now the expenses will increase rapidly because the cost of education of the child will be increasing. If you have not done retirement planning in advance, then at this age your worries will start troubling you. You can get loan for child’s education, but no loan will be available for retirement. At this stage of life, you will have to save at least 30-35% of your salary for retirement.

By the time you are in your 50s, you need to keep investing consistently for retirement. Equities can be 60 to 70 per cent of your retirement asset allocation as you have a long life ahead of you. The equity portion should be gradually reduced with the passage of time. You can take an education loan for the higher studies of the child. If there is any high interest rate loan like personal loan or car loan, then try to eliminate it.

You need a regular income when you reach the age of 60 years. Also, this is when your medical expenses also increase. So the amount you need for the next 3 to 5 years can be saved in debt funds or fixed assets. Put it in an income plan. Meanwhile, the money that will be needed after 5 years or more, leave it in the equity fund so that your money keeps growing.

If you too do not save at all like Abhishek, then start saving immediately and start your financial planning because money saved during your younger days is useful in old age. As your salary increases every year, you have to keep increasing your investment every year. In the long term, equity can give 10 to 12 percent return. Keep reviewing your investment portfolio so that in case of shortfall, your financial goals can be increased by increasing investments.