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The Personal Finance Checklist Before You Turn 35

Before you hit the big three-oh, there’s a few things you should start seriously thinking about in order to get your financial house in order.

1. Learn about Pay Yourself First

Pay Yourself First means that you come up with a monthly savings goal that is achievable for you, and automatically transfer that amount to savings as soon as your salary hits your account.

2. Implement Pay Yourself First

Now that you know the concept, learn the lesson. Unfortunately, we live in a generation where we only consume information and don’t put it to use. Don’t fall for that scam — determine your budget, decide what is the average amount that you can pay yourself per month, and actually set up a standing instruction to move that money.

If you invest, then you know where to put it. If you don’t (and we will come to that), just move it to another account (not your primary account) for the time being.

The action points for Pay Yourself First are:

Track your expenses for a month.
Categorize these expenses into four broad categories — food (including groceries, eating out), housing (rent, mortgage, etc.), transportation (gas, car payment, etc.), and miscellaneous. These are your recurring expenses.

Determine your monthly budget using your recurring and annual expenses.
The difference between your monthly budget and your net monthly income is your savings. Speak to your bank to transfer this amount directly to another bank account immediately after your salary is credited. Set it and forget it.
If this number is zero or negative, you need to either cut your expenses or augment your income, in order to move ahead financially.

3. Check your emergency fund status

Broadly, you need an emergency fund that will allow you to survive for 3–6 months. Now that you have completed the Point 1 lesson, you have a handy grip on what your expenses would be. Try to hit at least 3 times that number before proceeding to the next step.

How? Simple — the money that you are putting aside in Point 2, will go towards this goal, till you hit your number.

Only then you can proceed. If you already have more than that, you can skip this step. But where should you put this? In a high yield savings account. Do not bother with debt mutual funds and the like. The best personal finance plans are simple and easy to use.

The action points for building your Emergency Fund are:

Open a high yield savings bank account, preferably in a bank other than the one you primarily use.
Modify the standing instruction in Point 2 to move your savings to this account.
Track the status of this Fund. When you reach your target (3 months worth of funds), you can start saving up for other goals. Till then, this is your only priority.
Try to accelerate the target by chipping in any extra income towards the Fund.
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