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When we talk about financial stability, there is always a dilemma between short-term liquidity and long-term wealth creation. Short-term liquidity ensures you have accessible cash for emergencies and daily expenses, while long-term wealth creation focuses on growing assets such as stocks, bonds, endowment assurance and so on.
However, focusing solely on short-term liquidity leads to idle cash, whereas prioritising long-term investments may leave you vulnerable to unexpected expenses. The solution is to find the sweet spot between them. In this blog, we’ll explore the strategies that help you manage both effectively for sustained financial well-being.
Key Takeaways
An emergency fund covering 6-12 months of expenses prevents reliance on debt during crises.
Periodically reviewing your portfolio helps in aligning investments with financial goals and risk tolerance.
Endowment assurance plans provide both financial security and long-term wealth accumulation.
Additional Riders to assurance plans like critical illness and accidental death enhance liquidity and financial protection.
A ULIP plan offers dual benefits of investment growth and life insurance security.
Setup an Emergency Fund
Create an emergency fund early because it acts as a financial net against unexpected circumstances. Many financial advisors recommend keeping aside a certain portion that covers at least 6-12 months of living expenses. Without an emergency fund, you might rely on credit loans or personal loans, which can lead to debt accumulation. The key is to separate your funds from regular savings and use them in emergency situations.
Learn Budgeting
Budgeting is a great tool for managing your finances effectively. It allows you to allocate your funds to both short-term and long-term goals. You can use the 50-30-20 rule approach for effective budgeting. 50% of income should go to the needs (rent, utilities and food), 30% of income goes to the wants (entertainment and hobbies) and 20% towards the investments. This approach sets your financial priorities and helps you make informed financial decisions.
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Diversify Your Investments
Diversify your investments in a way that balances both short-term and long-term goals. A well-balanced portfolio includes-
Liquid Assets- Cash, bonds and deposits for immediate access.
Growth Assets- Stocks, real estate and mutual funds) for long-term wealth creation.
Pro Tip: You should rely on your portfolios periodically to maintain the right assets based on financial goals and risk tolerance.
Leverage Endowment Assurance Plan
An endowment plan is a powerful tool that helps balance short-term liquidity and long-term wealth creation.
Financial Cover (Short-Term Liquidity and Security) - An endowment plan provides financial protection for your family in case of an unfortunate event. This plan acts as a liquidity buffer because your dependents won’t have to liquidate investments or take loans during an emergency.
Maturity Value (Long-Term Wealth Creation) - Along with death benefits, this policy also has its maturity value. If you survive the policy term then you will still receive an amount. This plan acts as a long-term wealth-building tool because it allows one to accumulate a lump sum for future goals like buying a home, funding education or retirement planning. These dual benefits of insurance + saving make an ideal tool for financial growth.
Did You Know?
Budget 2025 proposes taxing ULIPs if premiums exceed 10% of the sum assured or ₹2.5 lakh annually.
Source: Clear Tax
If you are looking for the best endowment assurance plan, you can consider the ULIP Plan by Canara HSBC Life Insurance. It offers dual investment and life insurance benefits.
Addition of Riders ( Enhanced Liquidity and Security)- An endowment plan also provides additional riders such as critical illness, accidental death or waiver of premium to ensure extra financial protection. If a covered event occurs, the rider payout can be used for medical expenses or income replacement, preventing the need to dip into emergency funds or long-term investments.
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To achieve financial stability, you should balance short-term liquidity with long-term wealth creation. You can easily get financial flexibility by creating emergency funds, budgeting, diversifying investments, and leveraging endowment assurance while ensuring long-term wealth.
Glossary
Emergency Fund- It is a cash reserve that is utilised during financial setbacks.
Liquid Assets- An asset that is easily converted into cash in a short period of time.
Saving Money Calculator- It is a tool that determines how much money you save to meet your financial goals.
Endowment Assurance plans- A life insurance policy that covers death benefits along with fixed lump sum death benefits.
Growth Assets- An asset that provides higher returns in the future, such as property and stocks.
FAQs
Endowment assurance has a maturity period, whereas a whole life policy has no maturity period, as it is payable upon death.
The highest liquid asset is cash in hand.
Yes, FD is a liquid asset because you can easily withdraw the money.
No, because it has a mandatory lock-in period of 5 years.
The tenure of ULIP is a limited period of 5 years.
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.
