MUST HAVES

Personal Finance

Must haves in your financial first aid kit

When it comes to our medical health, we leave no stone unturned. The first-aid kit is usually armed with all the necessary medicines. But talk about financial health and guilt creeps in. More often than not, the financial first-aid kit is not sufficiently equipped.

Emergency cash
Emergencies could be anything - from serious medical conditions to a sudden setback on the job front. Emergency cash is a must-have in your portfolio. How much one should set aside for this really depends on each one’s income and lifestyle. “Around six times the monthly expenditure can be kept in a liquid asset like a bank deposit, as an emergency pool.”

Medical insurance and life insurance
The former for your life and the latter for your dependents. You need to have a medical insurance policy in place, not just because it gives you a tax break, but because it is the best way to fund your medical expenses. Taking medical insurance early on in life is an advantage because you have the benefit of good health on your side. Most insurance companies cover pre-existing illnesses only if you’ve had a policy with them, for more than five years. Also make sure you renew your policy on time.

“In case a policy is not renewed in time or if there is any gap while renewing it, the policy will be considered as a fresh policy and whatever exclusions apply in the first year of the policy will be applicable.”

You also need enough life insurance so that your financial dependents could invest the money and live modestly on the proceeds.

Child’s education fund
Start planning early for your child’s future. While you may not know exactly how much you ought to save, you could look at setting aside small amounts every year. Here you need to ensure a good asset spread, which provides adequate safety and growth. “For a medium risk person, a spread of 40:60 or 60:40 in debt to equity is acceptable. At the same time, one must maintain a good mix of liquidity and flexibility. It is important to keep away from instruments whose returns will be subject to tax incidence, on an accrual basis.”

Retirement Fund
This is the most ignored in all financial plans. Nuclear families are in and so are longer lifespans. Inflation and escalating medical costs will also be always around. Therefore, you need to build up a corpus that will not only take care of routine expenses but also provide for extra healthcare costs that you may incur. You need to have a corpus of funds, which will give you close to 100% of the salary you enjoyed while working, to preserve the lifestyle you are used to.

The trick, is to devise a professionally counseled and well-managed asset allocation portfolio. Typically, for a 25 to 45-year age band, the accent should be on equity investment. The amount to be invested in equity should necessarily be determined by the risk appetite of the individual.

Make a Will
If you die without making a Will, your family will have to follow certain ‘laws of succession’ in deciding how to split your assets. It is a misconception to believe that all the estate is automatically passed on to the spouse. Children and relatives can also stake claim to the properties. Laws of inheritance and succession are diverse and complicated. Making a Will is sensible because it leaves you to decide how your wealth is used. But unfortunately, most Indians simply forget to make a Will.

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