Many people take personal finance for investments in the products which will give good returns in future, multiply their wealth and if they invest right , they will become rich one day! But, personal finance is not just about investments….
Well, when you build a house, you build a strong foundation first and when the building is complete, you go for its beautification. Likewise, for your ‘Personal Finance’ , you should build your foundation first and then invest for returns and goals.
Building a foundation of your personal financial plan means planning and making provisions for the Basics! So, what are these basics? Lets see-
- Contingency Fund: A few days back, I got to know about a distant relative who lost his job suddenly. He is sole bread winner of the family and has a daughter who is studying in 10th. He somehow survived on some FDs balance and borrowings from friends and family till the time he got his next job. But what if, he had already made provisions for such phase in his life? This can happen with anybody. So better, Invest for ‘Contingency fund’ first. You should have a contingency fund of minimum six months of your household expenses. For this, you can start SIP in liquid fund/ ultra short term debt fund till the time you accumulate that much corpus. Please use this corpus for such contingencies only.
- Life Insurance: Life insurance is an assurance to you that your dependants will be economically self sufficient even if you are not there. People often mix insurance and investment and try to get returns from their insurance policies as well. Some policies are mix of investment and insurance but here, charges and premium you pay are higher, insurance cover you get is not sufficient. Please avoid such policies. If you really wish your dependants to be financially independent after you, then please take’Term Insurance’. This policy doesn’t give any return to the policyholder if he/she survives the term but pays the total sum insured to dependants on his/her death during the term. This actually serves the very purpose of insurance. As per the thumb rule, you can consider the policy cover of the amount equal to 10 years of your annual income. Term insurance is easy to understand, easy to apply and gives much higher amount of cover in comparatively less amount of premium. Earlier you apply, better it is!
- Health Insurance: Today, we see people facing many deceases and ailments like diabetes, high BP,etc even from early ages of their lives. This is mainly because of the stress, working hours, lifestyle,etc. With this, medical science is also advancing and so the healthcare costs. To provide for the same, please take health insurance policy for you and family. Nowadays, employer provides group insurance policy which covers self, spouse, ,children and parents as well. So, people don’t bother to get a policy of their own. But, its not right. You should have your own policy as well because what if the term and cover provided by your employer go under a change? If you leave your current job for new opportunity , then during a notice period, your existing health cover may cease and you get a new cover in the next organisation after your probation period. What if any healthcare expenses arise in that period? When you retire, by the time , if you have deceases like diabetes, hypertension etc, then insurance companies refuse to provide a cover or provide a cover with very high premium and long waiting period for existing deceases, this again increases your cost in your retirement phase. To avoid any such problem , please take a health insurance cover for you and family. With This , foundation of your financial plan is strong. This sets you free to set your goals, plan your investments for them to achieve and enjoy its fruits! Its always better to take the services from a Professional Certified Financial Planner for better and accurate guidance!