Ensuring your family’s financial security is a continuous effort. You can make sure that your family can survive bad health, loss of life, or disability of the breadwinner. However, financial security is not just for emergencies; it must cover every aspect of life. While a life insurance plan is one of the best ways to ensure long-term arrangements of security, financial safety during the normal course of life is also important and will, perhaps, consume the majority of your time and effort.
Understanding what is financial security can be easier if you follow the steps to secure your loved ones financially. Following a step-by-step guide, the approach can make your task easier to navigate and can help you achieve more. Here are five easy steps to simplify your journey toward a secure financial future for your family:
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The first step is obviously to budget your expenses so that you can plan to spend your money more productively. How you budget the expenses is the most important part. Initially, you may find each expense to be important on your expense sheet.
So, what does the budget mean for you? Budgeting usually refers to postponing non-urgent expenses for a later date and increasing your current savings. It is seldom about eliminating expenses.
How long you can postpone the non-urgent expenses depends on your and your family’s resilience and lifestyle. However, the long-term consequences are equally rewarding for those who can stay patient.
Here are a few common methods of budgeting household expenses which experts use:
The best investors who use budgeting as a ladder to step up their wealth building spend about five to ten minutes daily listing their spends throughout the day.
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This may sound like budgeting, but this is not the initial budgeting exercise. Rather, it’s the revision of your expenses and this step is most important for those who use credit cards. Credit cards can be a source of much frustration and financial drag if not managed properly.
You should schedule a time at least once a year to revisit your credit card and other expenses. This is to consider those expenses which may not show up on your expense sheet every month.
These expenses like, subscription to OTT services, news and media services, TV channels etc. often go unused. Since most of these services while the charge for the entire year you may easily forget the unused subscription. The subscriptions, on the other hand, will keep on charging your credit card automatically every year.
Take this time to remove such unwanted subscriptions from your credit card bill. Even better is to not opt for automatic renewal altogether so far as you can avoid.
Once you have started the budgeting exercise, you have a monthly surplus. The first thing you need to do with this surplus is to start planning for contingencies and secure health and term insurance policies for your family.
Here is a list of essential insurance covers for a comprehensive contingency plan:
Starting with term insurance ensures your family’s financial security, while health insurance safeguards you against medical emergencies, together creating a robust safety net.
According to a survey conducted by the National Sample Survey Office (NSSO), only 8% of the Indian population is covered by any form of health insurance.
Source: NSSO
Once you have secured your family boat against the contingencies, it’s time to stock up the emergency fund pool. As you may have noticed, contingency plan costs money, even if small amounts, and there is no insurance for loss of income due to job loss.
In the absence of insurance, you need to retain this risk, and emergency fund will do exactly that for you. You can aim for reserving three to six months of salary in this pool. However, given the circumstances of COVID-19, you can aim higher.
Do remember though, that funds lying in the emergency pool may not help you in building wealth due to the low rate of interest on savings.
Once your contingency and emergency plans have been executed, it’s time to invest in your family’s future financial goals. Also note that so far most of the investments you have made, except the insurance, do not provide you with any tax savings.
If you have subscribed to provident fund contribution through your employer you already have one tax-free saving plan going for you. However, given the inflation and your growing lifestyle, you will need additional investment for your retirement goal.
Here’s the order of goals you should start saving for now:
Saving for short-term goals is important as these goals may end up interrupting your long-term savings if ignored for too long. You can start a single investment plan like a ULIP, to accumulate money for these goals. ULIPs provide you with the following advantages:
Additionally, ULIP plans are the best child investment plans, as you can ensure the maturity fulfils the child’s goal, even when you are not there.
For example, ULIP plan from Canara HSBC Life Insurance has the goal protection feature. If you opt for this option, the insurer will invest the due premiums on your behalf till maturity in case of your early demise.
Your family will receive a lump sum at your death and the investment part of the policy will continue till the intended maturity. This option is best when you cannot afford to compromise on the goal.
Plus, ULIPs give you the option to invest in equity and debt, so you can create your portfolio as per your risk appetite. In the end, don’t forget to revisit your investments once in a while.
Building a secure financial future for your family involves a combination of careful planning, disciplined saving, and informed decision-making. By establishing a clear financial plan, setting realistic goals, and regularly reviewing and adjusting your strategies, you can create a stable foundation for the future. It's essential to invest wisely, ensuring that your portfolio is diversified and aligned with your long-term objectives.
Additionally, safeguarding your family's financial well-being through adequate insurance coverage and creating an emergency fund can provide peace of mind against unforeseen circumstances. Ultimately, maintaining open communication with your family about financial matters fosters a collaborative approach to managing finances, ensuring that everyone is on the same page and working towards shared goals. With diligence and foresight, you can pave the way for a financially secure and prosperous future for your loved ones.
A family financial goal is a specific financial objective set by a family to achieve economic stability and prosperity.
If you are wondering how to secure your future financially, you can assess your current finances, set clear goals, create a budget, and regularly review and adjust your plan.
To write a family financial plan, outline your financial goals, list income and expenses, create a budget, and develop strategies for saving and investing.
Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.
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