5 Steps towards a secure financial future of your family

2024-08-02

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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 a 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:

Key Takeaways

Smart budgeting is not about pinching pennies, it's about spending intentionally.
An annual expense review will keep you from surprise bills and subscription drains.
Health and term insurance are your family's first line of financial defence.
Emergency funds are your backup plan when life takes an unexpected turn.
Saving for long-term goals upfront makes sure your dreams increase with your earnings.

Budget Your Expenses

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 means for you? Budgeting usually refers to postponing of 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.

Common Methods of Budgeting

Here are a few common methods of budgeting household expenses which experts use:

Urgent-Important Matrix: Helps you separate urgent outflows from the non-urgent ones. You can use this method with any other methods, as this method does not assign any limit to any of the expenses.

Kitchen & Lifestyle Classification: Helps limit the frequency of lifestyle expenses to limit the outlay and organise it better. Kitchen expenses can be grouped and assigned to one shopping list in the month.

Budget Everything: This method is best suited for singles or double income couples with no children. You remove the savings from your monthly income first and then assign the remaining money between the other expenses. In this method, you can assign a personal budget for self and use that as your pocket money.

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.

Begin securing your future

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Schedule a Time to Revisit the Bills

This may sound like budgeting, but this is not the initial budgeting exercise. Rather, it’s the revision on 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.

Buy Adequate Health & Term Insurance

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 insurance covers you need for a complete contingency umbrella:

Mediclaim Cover (preferably family floater cover if you are married)

Health cover for critical illnesses

Accidental death & disability cover (they are inseparable, and both are important as accidental case need urgent medical care)

Term life insurance at least 10 to 15 times your annual income

The best term insurance plans will provide both critical and accidental covers as added benefits. Term plans from Canara HSBC Life also offer increasing term covers with the following increment options:

Increasing cover at a fixed rate

Option to increase cover upon important life events such as marriage and childbirth

If you are married and already a parent, you should opt for the first option so that your life cover keeps up with your income automatically.

Did You Know?

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

Build an Emergency Pool

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 from 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.

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Plan & Start Investing in Long-Term Goals

Once your contingency and emergency plans have been executed, it’s time for investing 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:

Retirement Goal

Child’s higher education

Child’s marriage goal

Wealth goal

Other short-term goals like, vehicle, second house, home loan pre-payment, etc.

Saving for short-term goals is important as these goals may end up interrupting your long-term savings if ignored for long. You can start a single investment plan like a ULIP to accumulate money for these goals. ULIPs provide you with the following advantages:

Investment up to Rs. 1.5 lakhs is deductible under section 80C

Partial withdrawals (after five years) and maturity are tax-free

You can invest variable amounts after the minimum premium. Keep the maximum investment up to 10% of the sum assured in the policy to continue availing the tax-exemptions.

Invest a small portion of the money to equity. So that you can achieve better growth for goals you end up postponing for longer

Using ULIPs for Other Goals

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, Invest 4G plan from Canara HSBC Life 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.

Wrapping Up

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.

Glossary

OTT services: Over-the-top (OTT) services are streaming media services offered directly to viewers via the Internet, bypassing traditional cable or satellite television platforms.
Partial withdrawals in insurance: Partial withdrawals allow policyholders to withdraw a portion of their policy's accumulated cash value or savings without surrendering the entire policy.
Risk appetite: Risk appetite is the level of risk that an individual or organisation is willing to accept while pursuing its goals and objectives.

FAQs

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.