A 5 Point Financial Plan For Your Mid-thirties

Your mid-thirties are a critical life stage from the Financial Planning perspective. Your career is likely starting to take off; at the same time, you may be having to contend with burgeoning expenses related to things like your child's education, home renovations, or even lifestyle related expenditures. You've still got at least a couple of decades to go till you hang up your work boots, but that shouldn't lull you into a false sense of complacency, money-wise. Here's a simple 5 point Financial Planning checklist that should keep you on course.

Goal Planning
Divide your goals into long term (>10 years), medium term (5-7 years) and short term (~ 3 years). Having done that, prioritise them and draw up an action plan for their achievement, keeping your monthly investible surplus in mind. Long term goals could be your kid's college education, whereas medium term goals could be a down payment for a home, or renovating your flat. Align your choice of savings instrument with your goal duration above all else - for instance, make sure your short-term goal-based savings flow into a liquid fund or a fixed deposit, whereas your long term goal based savings flow into aggressive mid cap oriented mutual funds.

Debt Management
Now's the time for you to watch your debt closely. You may well be tempted to over leverage yourself, as you'll naturally be optimistic about your future earning potential. However - you would be wise to keep your debt to income ratio (measured as your total monthly EMI's, divided by your net monthly income) at less than 20% at all times. At the same time, it's vital to not revolve your credit card debt, and make sure you pay them off in time each month. Overborrowing can quickly spiral out of control at this stage in your life, affecting your peace of mind and your credit score in the process. Be watchful.

Risk Management
In your mid-thirties, it's vital for you to cover your bases from the perspective of risk management. You may have one or more financial dependents at this stage - who ae counting on you, not just for their day to day expenditures, but for the fulfilment of their future goals! Additionally, you may have one or more large debts to pay off (such as a home loan). Make sure that you've got adequate term life insurance to compensate for all these, in case an unexpected eventuality were to lead to the loss of your life. In addition, you'll need to have a floating medical cover that adds up to at least Rs. 2.5 Lakhs per family member.

Cashflow Management
In your mid-thirties, you're often going to feel overwhelmed by expenditures, especially unplanned, larger ones that may dent your hard-won savings, and make you feel like a hamster on a wheel! That's exactly why cashflow management is absolutely vital at this stage of your life. Draw up a simple, yet granular home budget and stick to it resolutely, while maintaining a reserve-surplus ratio of at least 25%, if not more. This will not just leave you with money to save each month; it'll help cushion your finances against unexpected outflows as well.

Emergency Fund Planning
The need for a highly liquid, easily accessible and sufficiently sized emergency corpus cannot be overstated. In your mid-thirties, building an adequate emergency fund needs to be a distinct financial goal in itself. This bears higher significance if you're planning to leave a stable job and undertake an entrepreneurial pursuit, or are planning to switch to change your career track. Although the thumb rule if six months' fixed expenditures, the ideal size of an emergency corpus should actually ideally be at least twelve months' worth. Start building one right away, if you haven't already. Point to note - an illiquid asset such as real estate cannot replace an emergency fund!