“What you haven’t done by 30, you’re not likely to do. What you have done, you’ll do lots more” — John Updike

Updike is spot on, especially from the point of view of wealth creation, for which a few decades in your life are as important as your 30s. The 20s — the time when one has few financial responsibilities — just whoosh by. The 30s are the ideal time to fortify one’s finances, mend one’s wayward ways, sow the seeds of financial prosperity, and reap their rewards for the rest of one’s life.

Wealth creation is one of the most important outcome of money management. Done right at a young age, and with the magical benefits of compounded growth, it will fulfil your life aspirations. Here’s a look at steps to take in your 30s to accelerate your wealth creation.

Set goals

Investing often happens in a haphazard, uninformed and goal-less manner. Any investment should be done in the pursuit of a clearly defined objective: For example, buying a home by 40, securing retirement by 55, creating the child’s college fund by 45 and so on. Setting up financial goals needs you to answer several questions.

One: How much money do you need?

Two: When do you need it?

Three: How much can you set aside every month for the goal?

Four: What’s the best investment instrument to hit the goal?

For example, your goal at 30 is to retire by 55 with a corpus of Rs 5 crore. Many financial advisers will tell you that for an investment horizon 25 years away, it’s advisable to invest in an equity mutual SIP of Rs 12,000 per month, scale up the monthly contribution 10 per cent each year and with the assumed annual rate of return of 12 per cent, you can create a corpus of Rs 5.1 crore. Goal-less investing, or investing for baser reasons such as tax savings, can have a disastrous impact on wealth creation. Therefore, set clear goals, speak to a financial adviser and boldly pursue your life goals.

Protect your money

Life can sometimes throw some tacks in your path, making it tougher for you to go for your goals. For example, a health emergency can strike at an inopportune moment, draining your investments and unravelling your plan to retire early. You must protect yourself against these vagaries. There are three clear steps you can take.

Always have an emergency fund locked in a fixed deposit. Ideally, it should be 3-6 times of your current monthly income. This fund is to be used only in emergencies such as loss of employment, health problems, repairs, urgent travel etc.

Your whole family must be adequately covered by a health insurance policy. Hospitalisation can quickly drain your hard-earned money, but a well-equipped health cover will keep your money safe.

Have a term insurance cover, because even in your death, your family should achieve their goals.

In your 30s, an ideal term cover should be 20 times your current annual income and it will be the income replacement tool for your family in your untimely death.

Diversify your investments

Growing your wealth in a manner that maximises returns, minimises risks, assures liquidity and provides tax efficiency needs you to have a mix of various asset classes in your investment portfolio. The typical Indian portfolio is heavy on real estate and gold but light on financial instruments such as mutual funds and equity. Care must be taken to ensure the optimum balance is maintained among your preferred asset classes.

For example, a real estate-heavy portfolio could mean lacking liquidity in an emergency; a gold-heavy portfolio means earning very low returns which drag down your overall wealth growth; and an equity-heavy portfolio means that your investment is volatile. Therefore, it’s advisable to come up with the optimal mix of asset classes in a manner that your goals are achieved, taxes minimised and liquidity guaranteed when you need it.

For someone in their 30s, long-term goals should be achieved through a mix of equity (preferably mutual fund SIPs) and small saving schemes such as PPF that provide government-guaranteed returns. Fixed and recurring deposits should ideally only be used to meet short-term liquidity needs and not as investments because of their low returns and tax inefficiency. Gold should ideally comprise around 5 per cent of the overall portfolio to lend stability and even growth during economic uncertainty.

Optimise your moves

Your life goals may be clear and perfectly defined, but your investment decisions may need tweaking now and then. Therefore, it’s necessary to revisit your investment plan periodically and taking corrective actions wherever necessary.

If you have a well thought out plan, avoid making wholesale changes. Consult your investment adviser and take their sign-off on major changes. Don’t forget to step up your investments each year as your income rises. For example, if your take-home rises 10 per cent in your next hike, remember to increase your investment contributions by the same margin. Similarly,use your seasonal income, windfalls and bonuses to step up your investments. Be smart about discretionary spends. You must enjoy your money but not at the cost of your overarching life goals.

Your 30s are an extremely critical time in your financial life because you have the benefit of time which an older person does not. Use it to your advantage and you can fulfil any life goal, no matter how difficult.

The writer is CEO, `BankBazaar.com`