Financial management in your 30s
When you are in your thirties, you probably have just got married or have a very young kid. How you want to do well in personal finance, you must manage your finance better when you are 30s if you have not started during your 20s. How are you going to manage your finance better?
During this stage, you have new family members, expenses will increase too. If new house has been purchased, you have even bigger commitment.
First: take care of your family and wealth protection. Family protection becomes very important because there will be more commitments. If you are a bread winner, you need to have adequate insurance protection to cover the liabilities – the car or house loans. When death happens, the family do not need to bear your loans. Critical illness coverage is also important at this stage because when the bread winner suffers critical illness, the family needs more monies for supplements and treatment, the bread winner might not have the ability to work anymore. Hence, the family income will reduce tremendously. One needs to protect the income via critical illness insurance payout. How much is adequate? In general, the death coverage shall be 10x of the annual income and the critical illness coverage shall be 5x of the annual income.
However, at this stage, you will find that you have much more family expenses than when you are in your 20s. To save money, you may consider buying just term life insurance. Keep the insurance cost within 10-12% of your annual income.
Second: start preparing for retirement fund. In 30s, it is critical to start investment if you have not started investment before. Channel 20% of the income to investment for retirement fund. Watch the previous video I recorded for calculating retirement sum here. The later you start, it will be more difficult to accumulate enough funds for retirement.
Third: if you have children, you need to put aside extra 5% of your income for their children education fund. Education is the best gift parents can provide for the children. Hence, always prepare some monies for children’s higher education when the children are still young. The more time you have, the easier it is to accumulate the fund. You don’t want to regret not having enough money for your beloved kids when they are ready for tertiary education.
Fourth: scrutinize your tax and maximise the tax benefits given by the government. In 2020 tax year in Malaysia, you can get tax relief up to RM3,000 for life insurance premium, RM3000 for private retirement scheme, RM 3,000 for medical and education insurance, RM 8,000 for SSPN which is the children education contribution. As a smart person, you shall maximise these benefits because you need to protect your family, save more for your retirement and children education fee. While doing the necessary things, you save more taxes concurrently.
Fifth: Work smart and not hard. You cannot work harder and harder when the expenses keep increasing. You need to balance your family time and work time. Start to increase your sources of incomes, ideally some passive income streams. Expenses will start increasing until your retirement age. To maintain your saving rate, your need to have more income sources. You can also consider upgrading your professional skill so that you get higher pay hourly. Alternatively, you can start to have more investment properties, creating a business or intellectual properties which can bring you more passive income at the later stage.
Sixth: watch the saving and loan interest rates. You shall invest more than saving because saving rate is low. You need to schedule paying a little more loan payment every month so that you can finish paying off the loan faster. Pay the one with the highest interest rate first.
What if you cannot allocate the above-mentioned amounts for retirement and children education? Then, perhaps you are spending more than what you can afford. You shall try different ways to increase your income, understanding the 7 types of income streams here. You can also understand how you can spend wisely through this video here.
Watch the Youtube video here on this topic.
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