30’s is probably the most important phase of an income-earning individual’s life.  It’s the time when you are exposed to the maximum responsibility. It’s important to know the following 30 things about money before you enter into the most crucial phase of your life.

 

1. Know Your Net Worth

Your net worth is calculated by adding up the value of all things you own subtracted by the things you owe. The net worth is your financial report card.
Yes, you can start with negative net worth but you must improve it over time.

Keep tracking your progress and tweaking it by increasing the debt repayment and investing more money to keep the net worth growing.

2.Making a budget

To keep expenses on a check, you must prepare a budget. The budget may be an 80/20 or 70/30 rule, where, 20 and 30 are the saving percentage of your income.
You can experiment the rule for the first few months and then come up with a strategy to follow

3.Cost of Renting A House

Where should you live? A rented house, or your own house? So, if it is a rented house,  you are not creating an asset, but you aren’t responsible for the upkeep and maintenance of the house either

To own a house, you need to have a large amount of money for the down payment. Here, you are creating an asset for yourself and accumulating more wealth as compared to a rented house.

4.Child Expenses

Okay, so let’s accept it, kids are expensive! You must be sure about your plan to sponsor a child financially, before you get into that leap. A big percentage of your income will go into catering the expense of your kids if you are planning to have them.

Start saving for the schooling of your kids before they join an institution. We all know how expensive education is and it is always better to start early.

5.Importance of Negotiation Skills

Work harder to negotiate your salary and boost your income. Take loans from creditors who give lower interest rates or bargain with creditors to decrease your interest rates.

Talk to your internet company and select a plan which benefits you with more facilities and lower monthly plan rates.
The list doesn’t end here! You can always negotiate with people over a phone call and save some money and improve your financial situation.

6.Becoming Debt Free

By taking a loan for a long period, you may end up paying a huge amount of interest. It’s important for you to know when you will be able to pay off the balances.

It’s important to maintain the amortization schedule of the loans you have, whether it’s a student education loan, or mortgage loan; this helps you to know your payoff date.

You need to keep a check on your credit card statement or you can also use an online calculator to see when your card will be paid off.

7.Avoid Borrowing to Repay Previous Debt

There is no point in trapping yourself in a cycle of paying debt. You cannot always take a loan to repay your previous debt. This will increase your liabilities.

It’s important for you to understand what things in life are to be paid off and how to live your life within the means of your lifestyle i.e. trying to cater your expenses with the amount you earn.

8. Passive Source of Income

Passive income comes from the return of stocks, bonds, real estate and more.

It is important to focus on your passive income because this will be your source of inflow, when you are not working.

9.   Knowledge About  Investing

It’s important to avoid investing in things you have no idea about. You can always take help from a financial planner before investing in stocks, if you have no idea about that particular investment.

10.Making Investments in Health and Education Sector

It is the most important investment which you should consider making, when you are in your 30’s. 30’s is the time when you face the maximum responsibility in your life.

It’s important for you to be healthy and at the same time be skilled so that you can cope up with the changing technology and compete with better-skilled people.

11. Estate Planning

You can allocate your money into asset and investments, but it is important to allocate people to those assets, in case you have a serious illness or injury.

Though no one wants to think of death, one should be prepared for uncertainty. It’s important to make a will to ensure that your asset and investments are in the right hands.

12. Retirement Requirements

It’s important for you to know your retirement goals so that you can start making contributions to meet that goal.

You can always check the retirement calculator online to determine the amount that you need to save now so that you reach a point in the future, where you meet your goals.

13.Inflation

It’s a bad idea to keep saving money in a piggy bank, simply because of the inflation factor. Slowly, but surely, the money loses its value. You know that there is inflation when the price of goods and services is increasing over time.

Because of the rising prices, the value of money decreases and the purchasing power also declines. Hence, it’s important to always keep inflation in mind when you plan to keep cash in hand or idle.

14. Liquid Assets Required for Emergencies

So what exactly is liquidity? When you turn an asset into cash, it is referred to as liquidity. So obviously, the most liquid asset is cash. Real estate can be an example of the illiquid asset since selling it might be time-consuming and also complicated.

Certificate of deposit, investments, etc. fall somewhere in between, because there may be a penalty to sell quickly or you may have to sell it at less than face value. You must always have liquid assets ready, in case of an emergency.

15. Assets V/S Liabilities

The resources that you own and which give you economic benefits are considered as assets. Whereas, liabilities are obligations that impose cost on you.

For example: The house that you own is an asset, but education loan or car loan are your liabilities.
Your aim should always be to own more assets than liabilities

16. Allocation of Assets

The different kinds of assets that you own need asset allocation. You cannot just put money in one asset (for example only real estate).

You must have the assets allocated in different categories like stock, bond, real estate and cash. You should also allocate your investments in different sectors. For example, it is unwise to own assets only in retail stocks or energy company stocks.

It is important to invest in many different things so that if one part of the economy isn’t working then your entire saving won’t suffer.

17. Credit Score

Calculation of credit score is done based on your payment history, the available credit you utilize and the length of time you’ve had credit.

You should always avoid opening a new account and closing the old ones or maxing out credit cards to improve and protect your score.

18. Annual Percentage Rates (APR)

The term APR is a common word, when it comes to interest paid on mortgages or credit cards. APR is the annual rate which is charged for borrowings or earned on an investment.

It is the percentage that represents the actual yearly cost of funds over the term of the loan.

The additional costs related to the transaction or any such cost is included while calculating the APR. But it does not take into account the compounding effect.

19. Compound Interest

Compound interest is a factor which can make you very rich or very poor. So how exactly is compound interest calculated? It is calculated on the initial principal amount and on accrued interest.

Let’s take an example; if you make 10% on an investment of Rs.100, then you have Rs.110. Now, because of the compounding interest, interest will accrue on Rs.110.
So, if you take 10% interest again, then the interest amount will be Rs.11 instead of Rs.10.

20. Tax

You cannot escape from taxes. There are different tax rates according to the income you earn.

You need to pay tax according to the tax bracket you fall into. Filling an income tax return is a little complicated and one might need professional help to do so.

21. Tax Deduction and Exemptions

The tax laws have certain provisions for deduction and exemptions which provides you a little relief from paying taxes, because it decreases the overall tax liability.

In deduction, the amount is first included in the income of the taxpayer and then the deduction is allowed as per the rules, i.e. in full or part or when certain conditions are satisfied.
An exemption on the other hand, is the income which is not charged to tax.

22. Capital Gains and Losses

There is a capital gain if you sell an asset for more than what you bought that asset for.
For example, if you have bought a stock for Rs.100 and sold it for Rs.500, you make a capital gain of Rs.400.

You will have capital losses if you sold the asset for an amount less than what you paid for. You can deduct capital losses from capital gain while paying taxes. This reduces the amount of your gain and also the tax that you pay on the capital gain.

23. Accounts to Be Used for Saving and Investment

For different purposes, you might need different kinds of accounts. If you want to put aside the money but also want it in case of emergency then you can use a high-interest saving or money market account.You can also consider the certificate of deposits (CDs).

If your vision is long-term investment, then, you can invest in mutual funds, stocks, or bonds.

24. Bull Market V/S Bear Market

When prices are rising or expected to rise, then it is a bull market. Alternatively, it’s a bear market when prices are falling.

Some investors intend to buy stocks early after timing the market if they feel that prices will rise. It’s usually hard to time the market.

25.  Stocks, Bonds, Mutual Funds & ETFs

The ownership shares of the company are known as stocks. The return and the investment performances depend upon the success of the company. When you buy different stocks of different companies, you increase your return and limit your risk.

Debt from companies and governments are known as bonds. The risk is a dependable factor and it depends on the creditworthiness of the borrower. Bonds are usually less risky and have low returns. Bonds with a higher rate of return are considered risky.

Your money is pooled with other’s money in the fund, and then the fund buys the mix of different assets, like bonds and stocks.

Exchange traded funds (ETFs) are like mutual funds, but are traded like stocks on a stock exchange.

26. Importance of Diversification

Diversification means putting your eggs in different baskets. Diversification of your investment will help you to divide your risk among different asset classes.

It’s always better to invest in different companies rather than investing in the stock of your favourite company. You can invest in mutual funds or ETFs to diversify your risk and to generate a higher return.

27. Measurement of Return on Investment

The amount that you make, or lose, relative to the invested amount is your return on investment.

For calculation of  ROI, you need to divide the amount gained from investment by the cost of investment.

Multiply this number by 100, as ROI is always expressed in terms of a percentage.

28.Risk Tolerance

The degree of risk tolerance is different for different people. There is a higher rate of return on riskier investments and for safer investments, the rate of return is low.

It is your decision, as to how much risk are you willing to take. For some, you would take less risk because you wouldn’t want to keep the money in a saving box where there is absolutely no return.

29. Fee on Investments

Nothing comes for free. There might be some investments that come with a fee.

Fees can be really expensive and can cost you a fortune. All the lists of fees and expenses that you need to pay will be listed in the prospectus for each investment.

30.Re-balancing Your Portfolio

It is important to keep looking into your portfolio and keep rebalancing it. You just can’t assume that you can buy investments and sit back and count the profits made on it.

You can sell off a portion of the assets in your portfolio, if some assets outperform the others. But, if you have invested in mutual funds, then you will have mutual fund managers to manage your portfolio.

 

Happy investing!

Disclaimer: the views expressed here are of the author and do not reflect those of the author.