Getting established in your 30′s
October 6, 2006
The thirties is the time when things are moving up: you’ve been promoted to supervisor or manager, or you’ve started a business that’s up and running. You have more or less figured out what you want to do in life, and you may be starting a family too. Whatever your status in life is now, these are the years when you should be firming up the foundation for your financial future.
True, retirement may seem so far off, but the key to having a comfortable life at that time lies in how you handle your finances now.
Your expenses may be at its highest at this time, especially when you have children to put to school, a home to build, and parents to look after. However, these expenditures should not deter you from building your personal wealth. All it takes is good money management.
3 secrets to building your personal wealth
1. Cover the basics. Your life is precious, and more so when there are people dependent on you, such as your spouse or children, or sometimes your aging parents. Buy life insurance to help your dependents get back on their feet if something happens to you.
It is also essential to get health insurance if you don’t have this as an employee benefit, to cover those unplanned expenses when you or your loved ones get sick.
If you have children, decide how you will provide for their education — you may get an educational plan or save on your own using other forms of investment.
2. Have a larger emergency cash fund. Savings from monthly income should go into this fund. Ideally, you should already be adept at spending less than you earn so you will have savings every month.
This fund should have enough, like six months’ or a year’s worth of income, or a certain percentage of your total assets. The fund should also be easily accessible yet earning more than what a savings account would give.
Sari Pascual, Citibank Philippinesâ€™ Retail Bank Marketing Head, suggests time deposits, treasury bills, and money market funds. “These may potentially provide a decent return without the fluctuations associated with the more risky investments.”
An emergency cash fund would sustain you when you find yourself in between jobs, or when you want to stop working to focus on your family or higher studies, or for any emergency.
3. Invest for the medium- and long-term. Once you have built up your emergency cash fund, start building your investment portfolio. Don’t wait until you get into your 40s or 50s to do so.
If you have children and you’ve decided to save on your own for their college education, determine first how many years you have left to save for that. For example, if your daughter is 7 years old now, you have about 10 years left to save. Look for an investment vehicle that will give you a high potential return for ten years. Examples would be mutual funds, bonds, or endowment policy.
A home is also considered a form of long-term saving. This is because in the future, you would have paid off the loan and be the owner of a valuable asset. The earnings potential, though, depends on the real estate market in the future.
For your retirement, it’s not enough that you expect to receive a lump-sum amount or regular pensions from the Social Security System or the Government Service Insurance System. What you may get will most likely not be enough for your needs. This is why it’s essential to go into long-term investments for retirement.
Your investor profile will enable you to identify the right investment for you. If you are conservative, bonds may be a good choice. If you are comfortable with the idea of taking on some risks with the hope of earning more, then stocks may be more suited for you. If you don’t know your profile, here’s a simple investor profile questionnaire that you can answer. Bank can present investment options that you may consider. “Investors usually consider bond funds, balanced funds, stock funds, and even direct stock investments to give them the best earnings potential in the long run,” Pascual says.
As expenses have grown at this stage in your life, you may find yourself able to put in only a small amount for long-term investment. Donâ€™t worry; a slow start is better than not starting at all. The important thing is you set aside something now. You can increase your investment in the next few years.
Although your goal is to build wealth for your future, be wary of joining get-rich-quick schemes. If the offer sounds too good to be true, thatâ€™s because its most likely a scam. Deal only with reputable companies.
The other side of the coin is playing it too safe. If you find the mechanics of investing bothersome and decide not to do anything at all, don’t make all your money sit still in a safe, or in a savings account, or in a non-interest-bearing checking account. Remember the Parable of the Talents in the Bible? The ones who put their talents to work earned rewards. The one who buried his under the ground didn’t get any reward at all. If you put your money to work starting now, you’ll reap your rewards in the future.
- From the “Take Charge of Your Money” series published on http://business.inq7.net/money/