Feel grateful when you are paying your bills and taxes. This means that you have a roof on your head, and enough money to be able to provide for your family. However, is this enough? Having enough money in your wallet right now might not translate to a financially secure future tomorrow. Ask yourself some necessary questions to check how secure your financial life is.
Being financially secure is not about being able to purchase or wave your credit cards at the shopping counters. It is about having the much-needed money to face tomorrow. It is about being able to pay for emergencies. To ensure this, we must continue to save enough, invest regularly and insure adequately. Financial security is all about finding the right balance between securing protection and creating wealth.
Not that you have to beat your head against the well to determine your financial security. Ask yourself some basic questions. Do not ignore situations that may have caused you to beg, borrow or steal. Be terse and honest while seeking answers to the financial difficulties that you may face.
Seeking financial security is not a one-day exercise. It is a series of acts that must be done in harmony with one another. The most important part is that these acts are recurring, which means that you cannot rest thinking that you have done your part.
You discover your risk appetite, decide your financial goals, choose the right investment options, act quickly to invest in them and then review their performance from time to time.
Prepare your finances well
You know the financial risks that your loved ones would suffer in your absence. Start with buying a life insurance policy then. This will ensure that your loved ones would have enough money in their hands to pay for their daily expenses even if you are not there with them. For this, you must first check how much insurance money would help your family handle their immediate, short-term and long-term goals when you are not there.
Do not go for the standard ₹1 crore amount that insurance companies advertise. Check the liquidity of your assets. Assess your liability by evaluating the collective value of all your debts and loans. Calculate how much the family needs every month to maintain its current lifestyle. Maintain an excel sheet of daily expenses. Divide them into necessary and cursory expenses. Add your current loans and liabilities. Include your dividend earnings, salary, income from other sources, and the immediacy of your liquid assets like debt funds, and fixed and recurring deposits. Check your long-term debt instruments like PPF, EPF and SSY too. You will know how much insurance you must buy to ensure that your dependents do not end up living hand to mouth in the event of a sudden financial disaster.
Also, make sure to discuss your finances with your spouse. Ensure that all the nomination details have been filled rightly. For more security, draw up a will that details the allocation of your assets and liabilities in your absence.
Health is indeed wealth
Money alone can’t please you if you are frail and ailing most of your life. Take care of your health too. Buy a health insurance policy that will pay for your hospitalization and subsequent treatment expenses. Make sure that your entire family is covered in the policy. Ignore people who disregard Mediclaim insurance as just another expense. The rising costs of treatment can make a dent in your pocket and ruin you financially. Having one with regular premium charges will ensure that you are relieved from paying towards the much bigger costs.
Also, you must not ask the insurance company to bear the expenses for minor treatments such as bruises and cuts, fever, etc. For this, you must keep an emergency fund ready with you. Ensure enough emergency corpus to be able to pay for at least six to 12 months’ expenses in the face of sudden job loss or an unforeseen mishap. Also, cashless hospitalization does not mean cash-free hospitalization, which means that you have to still bear some costs while getting admitted to any hospital for treatment. There are non-medical expenses too that you must bear from your pocket, and hence, the need for an emergency fund in place.
Are you aware of your financial goals?
Do you know how much money you would need both in the short and long run? Liquidity is an advantage that you cannot take lightly, which means that you must plan your investments so that you may be able to use them after two years, five years, seven years, ten years or more. For example, keep enough money in your savings accounts that you may always need within a week or so.
If you have a short-term financial goal, say two years, you must park your earnings in liquid funds. Remember that for short-term financial goals, the idea must be to allocate 100 per cent of your money in debt. However, if you have a long-term goal in mind, you can always opt for equity funds. Equity fund instruments when kept for more than a decade can help you create enough corpus for your retirement.
Save some money in debt funds too apart from the other regular debt instruments such as EPF, PPF, SSY, etc. The reason is the flexibility to withdraw the money at ease as opposed to the government-sponsored schemes that are time bound and can be withdrawn only subject to certain regulations. The tax rate on debt funds is also much lower, thus, helping you save money on taxes too.
To start with, allocate 60 per cent of your money to equities and the rest into debt for consistent wealth creation and enough money to meet your immediate goals. Know the net XIRR of your portfolio to ensure that your investments are in sync with your financial goals. Check the value of your portfolio regularly so that you do not fall short of the amount you had envisaged during retirement.
Tracking investments’ progress
Investment is not a one-time job that you do and forget. You must review the progress of your investments from time to time. This will help you realize if your investments are performing as per your expectations. If not, either rejig your investments or increase your investment amounts every year. Also, realize how the decreasing value of money coupled with the impact of inflation can cause you to plan a higher corpus amount, thus, necessitating more investments.
Irrespective of how the market behaves, make sure to prep up your investments regularly to ensure that rising costs do not diminish your returns from the funds, thus, affecting your wealth creation.
A secure financial life is the first step to ensuring a secure future. You must not aim to be stinking rich or strive to invest beyond your means. Just take care of your savings through regular earnings and then convert them to regular and stepped-up investments so that you have enough money post-retirement in the absence of a regular income.