- Date : 22/05/2020
- Read: 4 mins
The 30s are an essential period in people's lives during which they should make sure that they are on the right financial path. These 5 money mistakes should be avoided to prevent a downhill financial spiral.
The thirties are a very critical period in a person’s life. This is the time when people get married, have kids, buy a house and take on the responsibility of their retired parents. It is also the time when they have gained good work experience and start making some impressive career leaps. It goes without saying that prudent financial planning is crucial at this stage.
However, humans make mistakes, and these mistakes can have grave implications. Let’s look at some money-related mistakes that people make in their 30s.
1. Misusing credit cards
Credit card is a great financial tool. It gives you the freedom to buy what you want and lead the lifestyle that you desire. But misusing its power can be very risky and can lead to disastrous results. Credit card companies make money by charging very high fees and interest rates. While it is okay to use the card to tide over the last few days of the month until your next paycheck comes in, it is not a good idea to finance an extravagant lifestyle that you cannot afford. Buying things you cannot pay for or paying the minimum amount due or not reading the fine print are common mistakes. This is how people end up overpaying for many of the products they buy.
2. Not creating an emergency fund
Young people feel that the probability of anything going wrong is next to nil. Consequently, they do not feel the need to save for an emergency fund. The emergency could be anything – loss in business, getting fired from a job, a family emergency or a natural calamity. Not creating an emergency fund is a major slip-up. It is imperative to put aside 10% of the income every month as the ‘just in case’ money. Fortunately, if you do not use it, part of it can be used to fulfil other dreams and aspirations that you might have. These could include travelling, buying something you had your eye on or investing it into your retirement fund.
3. Procrastinating saving for retirement
The general thought process for people in their 30s is that if retirement is at least another 25 years away, why worry about it now, especially with a steady income coming in? This outlook can be detrimental in the long run because if you start early you start, you can be stress-free later in life. Starting early also means that you can reap the benefits of the power of compounding. The trend and mentality of Indian kids having to take care of their aged parents are being done away with. This means that being financially independent during your sunset years is extremely critical. Creating a retirement fund is the right way to do it. Use a retirement calculator to understand your needs and how much you need to save to maintain your lifestyle in your golden years.
4. Not getting insurance
Not buying insurance is another major mistake people make. They think getting insurance is a waste of money. For example, health insurance needs to be renewed every year, irrespective of whether it is used or not. But one trip to the hospital for a moderately critical disease can set them behind by lakhs. Some work under the impression that they can buy it later in life when the chances of acquiring diseases are higher. Whether it is term insurance, life insurance or health insurance, it is prudent to get these to create a safety net in case something unfortunate occurs suddenly. It gives you peace of mind and helps you enjoy life a little more, knowing that there is a plan to fall-back on. Also, it is a lot cheaper and easier to get insurance cover in the 30s as compared to the 50s. Tinker with this life insurance calculator to understand what is the safety net your family will need in case of an eventuality.
Related: 8 Reasons to buy insurance online
5. Leading an extravagant lifestyle
Buying a house or taking a vacation you cannot afford are some of the common mistakes that people make in their 30s. No more than 30% and 40% of your monthly income should go towards housing EMIs or repaying your total debt, respectively. Living within your means is the mantra to financial stability and success. Supporting a lifestyle, you can comfortably afford is important. This gives way for making smart financial investments for your child’s education along with other life goals such as marriage, retirement fund etc.
Making any one of these mistakes can set you back and prevent you from achieving your life goals. Learn from these common mistakes people make and navigate around them the best you can. Take your finances seriously in your 30s by taking a look at the 7 Pillars of financial planning so you can live stress-free for the rest of your life.