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By Babar Zaidi, ET Bureau | 5 Aug, 2013, 10.12AM IST 120 comments | Post a Comment
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If you take these investment decisions early in life, they could
transform your financial future.
Eight smart money moves to make
before the age of 30
READ MORE ON Term insurance policy | smart money | retirement savings | PPF | health insurance | financial goals
| ET Wealth
They told you in school that the early bird
got the worm. In college, the sermon was,
well begun is half done. Just when you
thought you had had enough of these
preachy one-liners, ET Wealth has decided
to goad you into action. Our message is
simple: the investment decisions you make
in the first 5-6 years of your career have
the potential to transform your financial future. We list out eight smart money moves that
investors should make before they turn 30.
There are obvious advantages of starting early. Most of us know that the longer we stay
invested, the greater is the power of compounding. So, if you save Rs 5,000 a month in
an option that earns 10% annually, your corpus at the end of 30 years would be a
massive Rs 1.08 crore.
Your principal investment of Rs 18 lakh grows six times. Now, here's the surprise. What
you save in the first five years accounts for Rs 48 lakh (over 44%) of the corpus. The Rs
60,000 you put away in the first year alone grows to Rs 10.4 lakh, or 9.6% of the total
amount. Miss these wonder years of compounding and your corpus would be much
smaller at Rs 60 lakh.
How many investors realise this simple arithmetic? Not many, according to a study by
Ameriprise India. The financial planning company spoke to nearly 700 upwardly mobile
investors across six major cities in India and found that most of them had frittered away
the early bird advantage. The investors in Mumbai understood the benefits of early
investing best, with more than 80% of the respondents having started before they turned
26. In Delhi, on the other hand, only one out of four respondents woke up to this fact,
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Eight smart money moves to make before the age of 30 - The Economic Times http://economictimes.indiatimes.com/personal-finance/savings-centre/anal...
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Eight smart money moves to make before the ag...
MBA no longer a passport to a successful care...
while in Hyderabad, only one in five did.
Our cover story is intended as a wake-up call for Gen Y. If you have just started your
career, you will find these tips invaluable. Whether it is buying pure protection cover
early in life or signing up with a portfolio tracker to plug money leaks, these smart
financial decisions will lay a solid foundation for a prosperous tomorrow.
1) Take a term insurance policy
Buying a term plan tops the list of smart money moves. The earlier you buy life
insurance, the lower is the premium. "It is best to lock in at a young age when you are
hale and hearty," says T R Ramachandran, CEO and managing director, Aviva Life
Insurance.
Eight smart money moves to make before the age of 30 - The Economic Times http://economictimes.indiatimes.com/personal-finance/savings-centre/anal...
2 of 9 11/08/2013 7:44 PM
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We did some number crunching and found that if the cover is till the age of 60, the total
cost of buying the plan at the age of 25 or 35 or 45 is roughly the same. A 30-year-old
would pay Rs 3.18 lakh over 30 years for a cover of Rs 1 crore. If he waits for 15 years
and buys at 45, his total premium outgo would be Rs 3.39 lakh (see graphic). While you
pay the same price, your insurance term will be lesser. More importantly, a person who
buys late is taking a big risk till he gets protection. If he develops a medical condition
later in life, he may have to shell out a significantly higher premium. If the problem is
severe, he may be denied the cover altogether.
Keep a few things in mind when you go shopping for a term plan. First, the insurance
cover should be big enough to generate a monthly income for your family, cover major
expenses, and settle outstanding loans. Understanding this need, Delhi-based Pradeep
Khullar (see picture) bought a term cover of Rs 1.25 crore last year.
Secondly, the policy should cover you at least till the age of 60. Don't take a short-term
cover of 10-15 years, which ends when you are in your 40s. You need insurance most at
this stage of life and a fresh policy will cost you a bomb. Lastly, don't try to lower the
premium by mis-stating facts in the form. If you smoke, drink or suffer from a medical
condition, don't hide it. It may bump up the premium by a few hundred rupees, but your
nominee's claim won't be rejected because of mis-statement of facts.
Eight smart money moves to make before the age of 30 - The Economic Times http://economictimes.indiatimes.com/personal-finance/savings-centre/anal...
3 of 9 11/08/2013 7:44 PM
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Nothing can compensate steady income you can make from your employment. Nobody
talked about these products 20 years ago. Yet, our parents brought us to write thesis after
thesis on these prudent investment. Follow time tested methods followed by our parents,
earn well, spend wisely, grow children inteligently Rest will follow automatically.
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Term plan can buy online. Which is also cheaper.
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The article completely ignores inflation which is the basics of any investment. It appears
the author/s think that any investment is safe in the long term. In reality it is not so. An
amount of Rs.1.00 crore today will be just Rs.4.00 lakhs in value after 30 years at 7%
inflation. In this context kindly apply this inflation theory to the term insurance taken at the
age of 30 for 30 years. If the person dies around say at 56-59 yrs then what his family gets
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READ MORE ON Term insurance policy | smart money | retirement savings | PPF | health insurance | financial goals
| ET Wealth
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1 Hour ago
Sundar (Chennai)
1 Day ago
Ankit (Ahmedabad)
1 Day ago
S R Nayak (Mangalore)
Eight smart money moves to make before the age of 30 - The Economic Times http://economictimes.indiatimes.com/personal-finance/savings-centre/anal...
4 of 9 11/08/2013 7:44 PM
will have value of just Rs.4.00akhs
Actually, Rs 1 crore will be Rs 13 lakh in 30 years, assuming a 7%
yearly inflation. Also, as you age, the return decreases because of
inflation. BUT you also build up larger assets. Your family won't need as
much money at 60 yrs as it will if you die at 40!
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Thank you Vipin. Your assessment is bang on target. If the
policyholder dies at 59-60, he does not need to replace an income
at all (assuming he would have retired at 60). Nayak, the article
does talk about inflation when it underlines the need to save for
higher education of children. Perhaps you are correct. We should
have covered it in greater detail. But that would not have changed
the advice given in the article.
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Thanks for the information you are sharing with the real knowledge you
have.
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excellent article which summarises the good moves of financial planning applicable to
anyone who has just started his career.Though nowadays people are more aware of
benefits of investing at an early age,still there is a long way to go.Many thanks to et wealth
team for this informative and useful article,specially the expense tracker mentioned in the
article is one of the things that everyone should try
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So considering any one who is just following a few steps of Babar Zaidi invests Rs. 5000/-
PM in insurance, Rs 5000/- PM in PPF , Rs.1000/- PM in SIPs, Rs.2000/- PM in
contingency fund, and Rs 5000/- PM in Child plans (total is Rs. 18000/-) how is one
expected to survive in a city of Bangalore, Mumbai. Is Mr. Zaidi targeting only the IITians
and IIM graduates? If that is the case this article is perfect, else Mr Zaidi is far from the
reality where entry level salary is hardly rs 25000/- to Rs. 30000/- PM.
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No Kumar, this article is not aimed at the super rich but common people
like you and me. Believe me, term insurance at 25 will not cost you Rs
5,000 a month if you are below 30. It will cost just Rs 7,000 a year. Put
just Rs 2,000 a month in PPF, Rs 1,000-2,000 a month in SIPs and buy
health insurance for Rs 5,000 a year. Before you start SIPs, set up a
contingency fund of Rs 25,000-30,000. These 3-4 measures alone will
ensure a very prosperous tomorrow for you Kumar. Best of luck.
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23 Hours ago
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Eight smart money moves to make before the age of 30 - The Economic Times http://economictimes.indiatimes.com/personal-finance/savings-centre/anal...
5 of 9 11/08/2013 7:44 PM
Very useful and informative article. for me it's now very late but for our coming and younger
generation can think over it...
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It's too late for men like me to rewrite the financial course for ourselves,but certainly such
articles are need of the our for our children.I for one, am,surely going to take the cue from
the apt advises in this article for my son
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very informative thanks
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In this aspect Hyderabad lagging behind too far. All should know of it and consider.
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yep, basic
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Excellent article and good read..
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good read
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GOD
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Eight smart money moves to make before the age of 30 - The Economic Times http://economictimes.indiatimes.com/personal-finance/savings-centre/anal...
6 of 9 11/08/2013 7:44 PM
"Do not save what is left after spending, but spend what is left after saving" and if you are
following this quote then you can never become bankrupt or in debt throughout your life for
sure. ~ Warren Buffet
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THE PARADOX OF SAVING: WHEN YOU NEED TO SAVE EARLY, YOU DON'T HAVE
THE MONEY; WHEN YOU DON'T NEED TO SAVE IN OLD AGE, YOU HAVE THE
MONEY.
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Good article!!!
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Health insurance are better options as they help you fight major amount at time of major
ailments and dieseases.
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Though term insurance is undoubtedly a better option but there isn't any clear cut idea
about easy payment by private players and as far as LIC is concerned they have got huge
premium amounts.
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Very well illustrated article. Cover fundamentals of financial planning well
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Very beautifully illustrated article. I would suggest each person who start his career should
go through this article and apply accordingly. The power of compounding is a great thing. If
you try you will enjoy. My advice is don't go behind the wants, only fulfill your needs then
you will be surely happy.
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Thanks, Babar. Nice tips, put in a very crispy manner. How many of them follow is the
question, including me-of course!
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Worth reading.....
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I recommend it for all young people to read it & the aged people recommend it to your
younger ones
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very nice article !
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very good life insurance analysis. thank you, its really helpful.
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