22/06/2017 11:09 AM IST | Updated 22/06/2017 11:09 AM IST

8 Smart Financial Habits You Should Cultivate Before You Turn 30

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When you're in your 20s, having money feels great. Spending it feels even better. However, as time passes, we realise that money is more than a means to have fun. Managing it is actually hard work. There are loans and taxes and investments and what not...and come to think of it, no one really explained this stuff to you properly.

Fortunately, being in charge of your finances is not too complicated. It's about setting a sensible course, and sticking to it long enough to see the results. And the sooner we learn to do this, the easier the journey becomes. Therefore, here are eight smart financial habits that we should cultivate before we turn 30.

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Financial goal-setting

The road to financial well-being begins with setting the right goals. Goal-setting forces you to prioritise your wants and needs over the short, middle and long terms. It helps you temper your aspirations with a dose of reality, encourages responsible spending, and keeps you focused.

For example, you might want to buy a sports car in 3 years, but your salary might not justify this goal. A better plan would be to invest in building your skills, or starting a business, which can help boost your income and make that sports car a reality. Similarly, other worthy goals like a child's education, retirement and medical costs should all be part of your list.

Over a period of time, goal setting inculcates strong financial values and prevents you from losing sight of the things you value most in life.

Getting adequate insurance

Insurance is often seen as an unnecessary expense. However, life has a way of sneaking up on us when we least expect it. A lifetime's worth of savings can be blown away by an accident or illness in your family. Insurance cannot prevent these situations from happening, but it does the next best thing: it reduces financial woes during these tough periods.

So resist the temptation to skimp on insurance, like most people do. A comprehensive health, life or vehicle insurance policy might cost a little bit more, but you'll sleep much better knowing that you, your family and assets are protected, should a problem ever arise.

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Understanding the income tax system

Despite the large chunk income tax takes out of our salaries, it is surprising how poorly informed most of us are about it. Hence, before turning 30, make sure you have a basic understanding of the prevalent income tax slabs and exemptions, the tax-filing process and the mandatory documents. It might take you some time to understand, but remember, you don't have to be an expert: you just have to know enough so that you're not dependent on others forever.

Sidestepping debt

Even as banks and financial institutions encourage us to "enjoy now and pay later", the good old concept of living within one's means is still relevant today.

Taking a loan or buying stuff on your credit card is not a bad thing, especially if it is for a genuine need, like a home appliance or a child's education. However, one has to be wary of making it a habit or buying things that you don't really need on credit. Learn to identify dangerous debt traps—such as credit cards or high-interest loans—and stay clear of them as much as possible. And where the debt is necessary (such as a home loan), shop around to get the best terms, and make sure you repay it on time.

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Starting to invest

The old saying goes: the best time to plant a tree is 20 years ago; the second best time is now. You're never too young to start investing, so make sure you do it by the time you turn 30. Investing an age-appropriate sum in growth-oriented investments while you're young can help you build up a solid corpus by the time you retire. Given the way inflation is going, investing is your best hedge against spiraling living costs. And while there are several investment avenues out there, investing in mutual funds is a great way to grow your wealth, provided you are consistent and have long-term focus.

Getting value-conscious

Whether you're buying a pair of jeans or a car, ensure that you're getting your money's worth. Seeing every purchase through the prism of value is a good habit to develop. This doesn't mean that you have to become 'cheap'. Buying an expensive and high-quality pair of jeans and making it last a whole year, is much better than buying two cut-price pairs that will wear out within the first six months. Follow the same approach in every transaction you make.

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Getting comfortable with technology

In India and around the world, the whole idea of money is becoming digital. It is very likely that, barring small household transactions, 'physical' currency will gradually vanish in the years to come. This makes it very important for us to get comfortable with the new technology tools out there: from e-wallets to net banking websites, online insurance and loan aggregators, finance-related apps, bill payment services, etc. And yes, if you miss queuing up at the bank now and then, you can still do so—for nostalgia's sake.

Being pragmatic

The last habit to develop is a simple, no-nonsense attitude towards money. By now, it is fairly evident to most of us that there are no get-rich-quick schemes that work, no princes waiting to transfer millions of dollars to you, and no magical ways to multiply your money. Consistency and common sense will take you much farther than any short-cut can.

Developing sound financial habits early in life can equip you better to deal with life's ups and downs. One such habit is investing in mutual funds. Mutual funds are a great way of incorporating equity in one's investment portfolio, and are ideal for younger investors. The 'Mutual Funds Sahi Hai' campaign campaign by the Association of Mutual Funds in India (AMFI) showcases the benefits of mutual funds for people of all ages. To know more, visit www.mutualfundssahihai.com.