A few years ago I never thought I would be discussing anything about future and more precisely seven ways to secure your financial future with you all.Savings and financial planning were alien topics to me. If someone asked me what I thought about my financial future, I told them that I was set for the future. My future was fully planned. No level of new planning was required. My favorite line was “I don’t know what is going to happen in the future. So chill bro!” I think you now understand how much prepared I was. I was more than super confident that I don’t require any planning.
Fast Forward To The Present:
Fast forward to now after a few setbacks and uncertain situations, I really appreciate and acknowledge the contribution of several people who have pioneered the concept of financial planning. Financial Planning is the proper utilization of available fund and it’s channelization or management in order to achieve your financial goals. Below mentioned are some aspects of financial planning, that you can incorporate in your life in order to secure your and your family’s financial situation. Most of it is based on my own understanding and observation.This is not an advise by any financial adviser. I present to you Seven ways to secure your financial future. Starting should be made by maintaining an emergency fund.
As the name suggests, everyone should maintain an emergency fund. Most experts believe that an amount equivalent to three to six months of your take home salary should be saved .Or you can calculate based on your monthly indispensable expense like fooding, house rent, transport and other expenses, you will not be able to cut back even in case of any unpleasant situation like a job loss. It helps in case of any uncertain situation that may arise due to any medical problems or in case of any job change. It provides some cushion in case of emergency . If you are keeping in mind the recession, you could save more as it takes more time to get a job back. But remember that your emergency fund is for an emergency and not for every other excuse. You should maintain a separate account for your emergency fund . your emergency fund is not for a holiday trip or a dinner in your favorite restaurant.
Insurance as the name says, is a safety net, a guarantee given by the company that again protects us from implications of the sudden damage, loss or death of a dear one or in case of illness. Many types of insurance are there, but life insurance and health insurance is what I want to talk about.
- Health Insurance: Health Insurance is a type of insurance in which your hospitalization needs are met up to the contract amount agreed upon.In exchange of the facility, you pay a premium to the company you availed the policy from.It can be a cashless hospitalization or a reimbursement type facility. But please remember, most of the policies are not a cent per cent cashless. You still have to pay for emergency charges and consumable articles. Increasingly though, many companies are providing facilities for covering parts of them also.Individual policies and family coverage facilities are available.Many companies are present in the arena , but you should always have your research regarding claim settlement, time taken and other aspects. Health Insurance is very important in today’s world. With the increase in level of income and innovation in medical science, together with more people understanding the importance of health, more and more people want to avail good medical facilities. This has led to increase in expenses and as a result cost of these facilities has increased. With time medical facilities have become more and more costly. In order to avail these facilities, it is important to have a good medical insurance.
- Life Insurance:Insurance of life is one of the oldest insurance and most people know about it. It covers life up to the contractual agreement provided you pay the premium. Don’t forget that.When agreeing upon a coverage, you should always calculate the total liability including any interest payment or any other social obligation.This ensures that the loved once are not left without money. Money solves many problems. Here, my opinion is that a term insurance should be purchased. This insurance does not return any amount after its maturity but it provides a larger coverage for low premium in case of any sudden demise. This way it fulfills its main purpose.
Now please! Get realistic.After the emergency fund and the insurance premium, do you still think we have any money left for savings? Don’t we need some entertainment expenses?
Hey listen! I have to tell you something. You don’t have to do everything at a time. You started with an emergency fund and held it. Then you had to pay an yearly insurance premium. Now is the time for some savings. You can start with a small amount.Many experts say that you should start with at least ten percent of your take home salary. It may be invested in a mutual fund or a recurring deposit. Over time, it builds a good enough nest and you earn some interest on it too.Over time you become rich.In this context, a book “ The Wealthy Barber” is a good read. It is a good book on understanding personal finance. Plus, it is very interesting to read.
Recurring deposits or certificate of deposits are very safe investments and provide reliable source of income via interest. But these options do not provide compounding return on investment. Mutual Fund investments require long time of holding to return higher profit. These investments are also subject to market risk and it’s ups and downs. These investments generally provide very high rate of interest. But if you ever plan on investing in mutual funds, you should consult a financial advisor first. Mutual funds fluctuate as per market conditions and you will be investing your hard earned money in it. So it is better to take advise from an expert.
Recurring Deposits Vs Mutual Funds:
Recurring deposit or RD is a safe investment. Every month you save a fixed amount with the bank and the bank pays a fixed interest for your deposits. This amount is not based upon return from market. Hence there is a guarantee of payment for the amount agreed upon. So, anyone who wants a safe investment can put their money in this instrument. Return on investment is generally lower than mutual fund.
Mutual funds on the other hand are totally based on market return. As it is not easy to predict the movement of market and company prospects are never clear in the future, it is difficult for a common man to pick the best stocks. So, mutual funds are better alternative.Also, a systematic investment plan in mutual funds acts as a monthly investment. But as it is market dependent , it involves a degree of risk.Different types of mutual funds are available in the market based on the risk appetite of the customers.Here, return on investments are generally higher than recurring deposits.
A balance between the RDs and Mutual funds is a better option.
Debt is an evil. Please remember it.You have to keep paying interest on that amount. So, it is a liability. It is not earning money on it but losing money. That being said, many a times we have to go in debt . May be for a residential house or a college education or a major medical procedure, your insurance doesn’t cover.Many a times we don’t have any options.But increasingly we are getting addicted to a different type of debt. It is consumer debt. We purchase things we don’t need.You don’t need a new car every season. Vacation property is not a necessity but a luxury.You don’t have to go on a foreign tour every year by going into debt or what about the new iPhone X. The main thing is to differentiate between need and luxury and stay away from luxury purchases.If you take a loan or go into debt, pay it off at the earliest.
There is a saying “If you buy things you don’t need, you may soon have to sell what you need.”
Retirement Planning and Inflation:
Retirement planning is a very important aspect of personal finance. It is also an important issue emotionally. You are no longer earning and your golden years have started.You are old and you probably want to rest a little.But your medical expenses have increased over the years and you need constant medical attention.It is going to cost money.Also every year inflation will make it more costly. All this has to be covered from what ever you have saved in the years you worked.
With improvements in medical science, life expectancy has increased. What if the money becomes short.What if you don’t have enough? How are you going to sustain yourself?It is an important question to ponder over. Money is required so that your basic needs can be taken care off.Although everything in future is uncertain, it is still in our best interest to do what we can do.We should always plan early for our retirement.
Education is both important and necessary for our lives. Almost no parents want to compromise with their child’s education quality. With quality comes increased cost and over time, this cost keeps increasing due to inflation.Plan your child’s education and start a fund early for his or her education.Your prudent step can keep your child’s early years free from student loan and debt.This will be a huge head start in his financial career.
Last Thoughts on Seven Ways To Secure Your Financial Future:
Have a goal and then invest to accomplish the goal. This way you can keep track of your portfolio.Review performance of your investments. These are your investments and hence you are the one who need to be vigilant and careful.Start with a plan.Think what you want to accomplish and keep going. Remember, this is a very long game which we must win.Have patience and keep investing. Keep yourself adequately insured and always try to keep away from debt. Inflation eats up a lot. Your golden years should always be calm and peaceful.Money, though not everything, is very important. Manage it well.