Living a life without any goals is like throwing a stone in the air. – Aimless!!! Every day you are getting ready to go to your workplace, you have determined a road which leads to your workplace. In the same way, have you determined the road that leads to your financial freedom? I strongly recommend having a financial goal for you and your family. Further, break it into various time frame like 1 year, 5 years, 10 years, 20 years and so on. Now check where do you stand against those goals at different milestones. In this article, we will discuss various financial milestones you should achieve at a different age.
I will start with the age of 20 which is the foundation of the career and direction of life for an individual.
Financial Milestones by the age of 30
In your twenty-something, you are fighting with the life-changing movements like choosing your career, graduating from college, getting your first job, moving away from your hometown, getting married, buying a house, buying a car and so on.
This is the age where maximum changes happen in one’s life. At the same time, it offers a great opportunity for planning your finance. At this age, adult things start happening. The way you handle the situation is different than you used to do in your school or college.
Start saving and look at your credit now in order to have a wealthy life ahead. Start early start right. Starting measuring financial milestones at the early age will benefit you to have a successful financial planning. Below are the milestones you should aim and achieve before you turn 30.
What you should have achieved by this age?
Have an emergency fund: In your twenties, you have started earning a few bucks. At this age, you do not have much of an expense other than your personal spendings like clothes, personal gadgets, dining out with friends etc. Since the expenses are less, it gives you an opportunity to save more for the rainy days. (I bet you will have rainy days in your life).
At this age, you can take more risk with your career and ready for job hopping. Job uncertainties are at peak at this age. So there are chances that you may sit at home searching for a new job on your laptop. It is good to have an emergency fund at the early stage of your career so that if anything happens, you can take care of your expenses on your own.
Pay off your education loan: This is a good time to pay off your education loan if you have taken. As you don’t have much of any other liabilities so use the money in paying off the loan and get rid of debt. As your income starts, you should pay off your debt as soon as possible and start contributing to your family financially.
Be financially responsible: Your parents always want you to help and contribute to the family at some given point. As you started earning and have less or no liabilities, you should contribute to your family needs. Give your parents a space for planning his own retirement life. They have given their everything for your upbringing by compromising their needs. Now it is your turn to payback by taking some financial responsibility on your shoulders.
Establish a good credit history: If you have taken any loan or purchase any goods on EMI, you should look at your credit score. Regular payments of your loan and other EMI will boost up your credit score. This will help you in the near future when you are planning to buy a home or car by taking a loan. Good credit score will help you to get the loan easily from any bank or financial institution. Check your credit score regularly and don’t miss any EMI payment because that will affect your credit score.
Start an Investment Portfolio: Investing is simple and easy if you follow the discipline. Start building up your investment portfolio of various financial instruments like mutual funds, stocks, PPF, NPS etc. Have a diversified portfolio so that it can sustain against any weather.
For building a portfolio, you first need to understand how much you will need? So decide your goals first and the time horizon to meet that goal. Try SIP calculator to derive the desired corpus for your financial goals. Another important aspect of the investment is to have a discipline in your investment under any condition.
Be insured: It is very much important to have an insurance for yourself as you are going to be the major bread earner for your family. God forbidden, if something happens to you, your family will be in a big trouble and all your future planning will go for a toss. You can’t afford to have a situation where your financial planning is derailed even in your absence.
So take an adequate term plan for your self to cover the risk for your family in case something unwanted happens.
Track your expenses: I know its boring! but this is the habit if you cultivate can benefit you in the long run. Small saving can make a huge difference in the long run. Track your expenses carefully and regularly. This will not only help you to know where you are spending but also gives you an insight where should you not spend.
Once you have that clarity of where NOT to spend, you automatically start thinking about how to grow your savings and earn on your investment. By the age 30, you should be in the habit of tracking your spending and knowing where NOT to spend. This will ensure that you do not spend more than you earn. There are several Personal Finance Mobile App available for free which will help you to track your spending on the go.
Financial Milestones by the age of 40
Thirty something is the age where you are settled in your personal as well as professional life. By this age, you have accomplished many personal commitments like getting married, have kids, purchasing a new house, buying a car and so on.
At the same time, this is the age where you have maximum liabilities on your shoulder.
By the time you reach 40, below are the milestones you must have achieved.
Buying a home: In your thirties, you must purchase a home if it is needed. As once you cross 40, it will be very difficult for you to take a burden of home loan. This is the time when you are settled in your job and having a stable income month on month. By this age, you might have saved few lakhs for future planning or requirements like house, car, higher education of children etc.
Building a corpus for retirement: You will get retire at the age of 60 years in India. So you must start building your retirement corpus in your thirties. This is actually late but in India, most of the people wake up in their mid-thirties. It’s better to be late than never. So you must be saving enough for your retirement. For doing your retirement planning, first, decide the amount you would be required at the time you get to retire.
There are various online tools available to calculate the retirement amount. Use them cautiously as many retirement calculators are not reliable or they are not giving the correct picture.
Understanding of Personal income and Tax implications:
Penny saved is a penny earned
In your thirties, you are more or less settled. Earning a good and regular income for your self and family. You must understand the basic of personal finance and balance sheet of your home monthly budget. You also must know the various taxes that are applicable to your income. So the actual on hand cash flow can be determined.
Say, for example, if you are earning 1 lakh/month as a gross salary, that whole amount will not be credited to your salary account. There are various deductions like EPF, Gratuity, Bonus, income tax and so on. You need to understand all these basic terms and their implication in your salary.
This will help you to save tax and maximize your salary. Believe me, this extra bucks you save from your salary by paying fewer taxes will help you build your retirement corpus in a big way. The thumb rule is you must have saved money 3 times of your annual salary by the time you reach 40.
The clear direction of your career: By the mid thirty, you must have a clear-cut vision and direction about your career. You should be in the position of judging your position in the organization for the next ten odd years. You cannot afford to play around with your career at this age.
Upgrade your knowledge and skills to reach to the next level in your domain. invest in yourself and get ready for the next level.
Ideally, you should buy a home in your late twenties and finish off the loan by the time you reach 40.
Financial Milestones by the age of 50
In your forties, you must start thinking about your long-term goals like children’s higher education, their marriages, and your retirement planning. By the time you reach fifty, you must have paid up all your loans. At least have savings equal to your 4 times of your annual salary.
You should target for below milestones by the time you reach fifty.
Side Income: You should never depend on the single income. You should have a second source of income in your forties. This income can be from your investment like dividends. Additionally, you can have a part-time job or hobby which can earn your some amount of money. Having a second source of income will help you to build a corpus for your long-term goals like retirement or children’s higher education.
If you are a homemaker or want to work from home then here are some of the ideas through which you can earn extra bucks.
Review your Medical Insurance: It’s time to check your medical insurance whether it is sufficient or not. You might have taken mediclaim policy in your twenties or thirties for let’s say Rs. 500000. With the increasing price of medical aid, you must have to relook at your mediclaim policy whether it is still sufficient looking at the current health care expenses.
If not you must increase the limit of your mediclaim policy. This will ensure you and your family have enough cover so that your financial plans are intact.
Money is not Everything: By the time you reach 50, you have already achieved so many things in your life and you are now living a stable life. It is pertinent to understand that money is necessary for life, but it is not everything in life. You can have happiness from many other things life friends, family, social work and so on.
Experience comes with growing age. So in your fifty years, you have gone through many ups and downs in your life. And with these experience, you must have understood the value and place of money in your life. Stop comparing yourself with your friends or relatives.
Stop comparing friends and other’s success by the length of car or GB of their cell phones.
Financial Milestones by the age of 60
This is the last stop for financial milestones you have to achieve in your life. At this age, you have mostly completed your obligations like child’s education and marriage. It’s time for you to live a life for your own and your spouse.
Review your Will: You must have the will. So that all your hard earn money throughout your life is in safe hands. Check your will and ensure that it is in line with what you want to distribute after you.
Source of Income: Mostly at this age, the source of income is earnings from your savings like interest on fix deposits in bank or dividends you receive for your investments. Ensure you have an adequate source of income to meet your bare minimum expenses and any medical exigency.
Your Spouse is informed about your wealth: Make sure you don’t hide any wealth from your spouse at this age. As if anything happens to you and your spouse is not aware of all your assets and wealth, there are chances that your spouse will lose that wealth after you.
Have a plan! don’t think whether you are gonna hit it or not. Start with these milestones for yourself and you will never go wrong in your financial planning. I do this for myself. I draw and set my goals for every five years. These goals should be SMART goals.
Financial Milestones are must to have in order to have a peaceful life. these financial milestones will ensure that you are on the track of achieving financial freedom at the specific time period.