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Your Age and Your Wealth Creation Potential

Based on one's age, there are certain common financial products that can be suitably recommended to most people. We recognize that everyone is unique when it comes to the world of personal finance. However, there are good financial habits and relevant products that all can benefit from that can facilitate long-term wealth creation. What appears below is a highly generalized list of suggestions.

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20 - 30 years

• Budget: To start with, keep a monthly budget to help you understand where your money is being spent. This exercise will help you later in life. Start getting into the habit of saving a part of your monthly income.
• Tax: Understand at a high level personal taxation issues and how they affect your salary, and what are the most tax efficient investments you can make annually such as ELSS.
• Investments: Start investing in mutual funds through a systematic investment plan, however small the amount you start with. Take advantage of compounding of capital, and the ability to take financial risk in your youth years.
• Personal Accident and Disability Insurance: While you are still single, you might not need life insurance, but it is worth getting protection through a personal accident policy.
• Health Insurance: Make sure you have a health insurance policy, and preferably have something in addition to your company's healthcare plan.
• Auto Loans: If you have to take a loan, a loan for a car or two-wheeler can be used, but recognize that you are creating a liability to buy an asset that is losing its value daily.
• Other Debt: Stay away from personal loans and credit card debt, and definitely live within your means so that you are not at risk of getting caught in a vicious debt cycle.

30 - 40 years

• Real Estate and Financing: If you aren't already living in a house that you own, but are renting, start planning to buy your own house and build an asset. Understand how home loans work in case you need financing. Get home contents insurance as well. If you already own a home, consider a real estate investment to generate rental income to fund your retirement.
• Long-term Investments: Understand that you need long-term investments in place to fund your goals such as child's education and marriage, upgrading your car, buying a bigger house. Consider stable and diversified large cap mutual funds as the core of your investment portfolio
• Life Insurance: It is likely that you have a family and dependents by now, so you need to ensure their financial security by having adequate life insurance. Continue your personal accident protection either as a rider on your life policy or a separate policy.
• Health Insurance: Get a family floater plan. If you parents are below 65 years, get health coverage for them as well, after this age it can be tougher for them to get coverage.
• Retirement Planning: Choose what age you want to retire at and the kind of lifestyle that you might be interested in during retirement. Invest in a pension plan. Start thinking about your Will and how you want your assets to be transferred to your survivors. If you have a lot of assets already, write a Will.

40 - 50 years

• Liquidity: Understand when you will need capital for funding large expenses such as education and marriage for your children. It can take you a few years to exit your investments to meet these funding goals. Don't lock in your money into investments you cannot get out of.
• Debt: If you have any outstanding liabilities, start thinking about reducing your debt burden as you start preparing for retirement. Use your peak earning years to start reducing your financial obligations so that at retirement you have no pending financial liabilities.
• Life Insurance: Your financial dependents might have changed if your children have started working now. Update your insurance coverage accordingly. If certain policies are about to mature, understand what you will do with the proceeds.
• Health Insurance: Renew your health insurance. If your children are financially independent, they might consider getting their own policies.
• Retirement Planning: Keep your retirement related investments in secure instruments according to your risk profile. Update the analysis of your expenses during retirement, and review if your retiral accounts like PPF, PF etc. are adequate.
• Investments: Harvest investment income from previous investments, such as mutual funds or rental income and divert these proceeds towards secure long-term investments that will protect you against rising cost of living. Adjust your portfolio allocation away from high-risk funds to more diversified, balanced equity funds and relevant fixed income instruments.
• Will: Write a Will and get it registered.

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