In India, financial planning exercise for most individuals includes elements such as budgeting to generate savings, investing for goals, protecting income, managing debt and planning for the transfer of capital.
While each element has an important part to play in securing your finances, they are not equally significant at every stage of your life-cycle.
Instead, these aspects of financial planning can be categorised as critical, urgent, relevant, and optional, depending upon where you are in your life, age-wise.
For example, you may want to consider holding off increasing contribution to the retirement plan in favour of paying the premium for your child plan, once you start a family. Here’s how you must approach financial planning according to the various life stages.
The Income Stage
Once you start earning, it is entirely possible that you may want to spend all your earnings or feel that there’s not enough money to start saving.
In reality, however, it is the opportune time for you to start budgeting and saving, even if it is a smaller amount. In time, these smaller savings would accumulate into a large corpus.
Ensure your Health
As an unmarried professional in your 20s, with no dependents, it is essential that you secure your health and savings against any sudden medical care expenses, with the help of health insurance.
Nowadays, leading health plans not only offer low premium rates to young, healthy individuals but also provide the much-needed financial cover in times of need.
Buy Term Insurance
Although you may want to skip buying a term plan in your 20s, in the wake of seemingly more urgent lifestyle expenses such as buying a car or revamping your wardrobe, it is not advisable to do so.
Purchasing an online term plan at this stage of life, would not only fetch you a low rate of premium but also provide comprehensive financial security to your family, in case of any eventuality.
Also, term insurance policies offered by reputable insurers such as Future Generali, offer add-on benefits such as waiver of premium, critical illness cover, accidental death/disability cover, thus making them an absolute necessity in today’s fast-paced lifestyle.
Invest in Equities
Starting with your career, you should also look to maximise your savings and generate high returns on your investments through equity. You may invest in a ULIP plan that allows you to manage fund allocation between equity and debt instruments.
The Dependents Stage
Once you start your family, you need first to define your life goals and create a definitive financial roadmap for accomplishing those goals. These can include buying a house/car, planning a child’s education among others.
Buy/Enhance Insurance Covers
As your financial liabilities increase, it is the right time to create or review your insurance portfolio. In case, you’ve not purchased an online term plan yet to protect your loved ones against life’s uncertainties; you need to act fast and buy one.
On the other hand, if you have already bought an online term plan, you must enhance its coverage to make sure that the plan is in sync with your existing liabilities.
Diversify Your Investment Portfolio
At this stage of life, you should look to minimise risks and get risk-adjusted returns.
One way to do it is to diversify your portfolio across multiple asset classes including traditional savings instruments such as PPF, Senior Citizen Savings Scheme (SCSS) and National Savings Certificate (NSC) along with more aggressive options such as equities and ULIPs.
Doing this would not only help you create wealth but also meet long-term goals including child’s education, marriage and your retirement.
The Growth Stage
Invest in a Child Plan
As soon as you become a parent, you need to purchase a child ULIP plan to help finance the growing needs of your child.
The plan will help you accumulate enough money to fund your child’s education dreams and help secure their future in your absence.
Make Bolder Investments Choices
You need to make bolder investment choices if you want to generate high returns in the long run.
Therefore, investing in a comprehensive wealth plan would help you meet your needs for vacation planning, buying a second house and funding your child’s dream of studying abroad.
Also, investing in a good mix of equity and debt funds would help you beat inflation while protecting your capital gains from market volatility.
Invest in a Retirement Plan
While you work towards securing your child’s future, you also need to provide for your life post-retirement. As you have time on your side, you should invest in an efficient retirement ULIP plan and put away a significant portion of your funds in equities.
This would help you accumulate a considerable corpus by the time you decide to hang your boots and venture forth on a life of relaxation.
The Retirement Stage
Analyse Your Current Financial Situation
If you are planning to retire in the next couple of years or have already done so, you need to review your investment portfolio by this time to identify and remove any financing contingency.
Further, you need to cut down on excess expenses to get down to a sustainable level. Otherwise, the chances are that you could outlive your accumulated savings, and it is a scenario you should not be in.
Create A Health Contingency Fund
As you near retirement, the chances of falling ill also increase. In case, you don’t have a health insurance plan in effect; it might get difficult to obtain a policy at such a ripe age due to the high premium rates.
Therefore, you must create a separate contingency fund to only cater to health emergencies.
Financial Planning is a Journey!
Most young individuals and working professionals believe that financial planning is just about budgeting. In reality, however, financial planning is an ongoing endeavour of making smart investment decisions to meet long-term needs and life goals.
Therefore, you need to make optimum use of time, energy and funds by concentrating on activities that are crucial at each stage in your life.
In due time, you will realise that you have successfully knit together all the elements necessary to create sustainable financial protection without making the whole exercise too intimidating.
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