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5 Financial Management Hacks to Implement in 2021 for Your Family

dateKnowledge Centre Team dateDecember 22, 2020 views165 Views
5 Financial Management Hacks to Implement in 2021 for Your Family

‘To err is human, and to learn from it is wisdom,’ or so it should be. The unprecedented developments of the year 2020 revealed several financial mistakes we had been making in the course of our lives. It also brought light to the fact that perhaps we should not postpone minor yet important decisions for the sake of lifestyle.

Overall, as the year ends we should take the learnings from these unforeseen times to the next year. Here are 5 financial management actions to help you amend the money management and ensure a safer future for your loved ones:

1. Retouch Your Contingency Plan

Lack of a contingency plan was one of the most important mistakes for the year 2020. With urgent hospitalization and even sudden loss of life, those who had not subscribed to health and term insurance plans felt vulnerable.

Thus, for 2021, let take a moment to plan for your family’s survival during emergencies. Here’s a list of things you should consider for a good contingency plan:

  • Get Adequate Health Cover

    Health insurance can support you financially in case of sudden hospitalization. Adequate health cover means that the benefit amount of the cover is large enough to allow the best medical care to you and all your family members. Yet, at the same time the cover should be:

     • Affordable for you

     • Should keep up with the inflation

    You will need two kinds of health covers for your family. One is the Mediclaim insurance which takes care of hospital bills directly. The other health insurance protects you financially against dreaded diseases, which are unpredictable and can be financially devastating.

  • What If You Already Have a Health Insurance?

    If you already have health insurance, all you need to do is check the following:

     • Is the coverage adequate?

     • Does it cover your spouse and child?

     • Do your parents have adequate health cover?

  • If your existing health cover is low you should try and secure a higher sum insured under the plan. While you can increase the cover under Mediclaim insurance with critical health cover you will need to buy another policy. You can also add new family members to your existing Mediclaim insurance plan.

  • Secure An Adequate Term Life Cover

    Term life cover is a minor cost to pay for lifetime financial protection of your loved ones. You can ensure an adequate term insurance cover for your family which will provide them with the following in case of your sudden demise:

     • Large lump sum to take care of debt and invest for future financial goals

     • Regular monthly income for the household and lifestyle expenses

  • With term life cover like iSelect Star from Canara HSBC OBC Life, you can even secure a growing monthly income for your family. Growing monthly income option is especially useful if you have a young family.

  • What if You Already Have a Term Life Cover?

    If you already have a term life cover, you need to check the adequacy of its time and again. You should revisit the term cover either every few years or when any of the following events have happened:

     • Your income has grown substantially

     • You have a new dependent family member

     • You have acquired a new loan, like a home loan

     • Your family’s lifestyle has changed

  • The best term insurance plans, including iSelect Star from Canara HSBC OBC Life, allow you to increase your sum assured on these occasions. With iSelect Star term plan, you can also choose to increase your term cover every year automatically.

  • Do You Have A Contingency Fund?

    At the beginning of the year 2020, the employment market also suffered setbacks due to an uncertain future. Such an event threw many of the victims back to the planning board if they did not have enough emergency funds.

    Emergency funds help you in case you suddenly lose your income. Even when you are single and have no dependents, you will need a pool of fund to take care of your expenses till you secure a new income source.

    Three to six months of following expenses should be enough to help you sail through such emergencies:

    • Household expenses – kitchen, electricity, water, internet
    • EMIs – Although there was a moratorium scheme in 2020 for borrowers, it may not happen in future. Thus, preparation is the best solution
    • Insurance Premiums – You may stop your regular investments, but you must not lose your insurance cover in such times.
    • Additional Expenses – You will need to incur expenses on commutation and employment search so have some additional money for this.

2. Plan Your Annual Expenses, Savings & Taxes

Looking at the bigger picture could lead you to larger breakthroughs with your money. If you want to save more, lower your taxes, and grow your wealth faster, annual planning can give you the wings you need.

Annual planning of your expenses, savings and taxes will involve the following steps:

  • Review previous year’s bank, credit card and mobile wallet statements for the items you spent your money on.
  • Classify all the spending in three groups – Important, Long-term Investment and Aspirational (Aspirational expenses are momentous purchases which are more lifestyle spends than based on immediate family needs. For example, dining out, birthday parties, etc.)
  • Budget Each Outflow: You can put a lid on the spending by assigning a limited budget to it, especially on the aspirational expenses.
  • Automate Your Investments: Automating your investments will help you in meeting your investment needs towards your goals. This discipline is very useful if you want to be in a better financial situation.

3. Spend on Financial Education

You may be surprised at the lack of knowledge you received during schooling about the most important part of your life – money. However, you do not have to continue to suffer the same limitations anymore, and neither do your children.

You can make use of the numerous short term courses on financial management and investment. With online sessions and video lectures, you can gain more insight into how the world of money works from the comfort of your home.

Enrolling your child into one of the financial management courses will keep them abreast in financial matters. Thus, when they start earning, they can be more prudent with their money.

4. Recalibrate Credit Card Spends

Credit card is a useful tool, especially in case of emergencies or large expenditures with bonus. It is also one of the most easily misused financial tools in your pocket. If you use your credit card prudently, it can help you improve your savings and lifestyle. However, if you end up spending without checks, it can easily set you in a financial trap.

Best way to use your credit card is to have your budget divided into two parts:

  • Cash Expenses Only – This is for those necessary expenses where your credit card may not work, such as vegetables, small vehicle, household repairs and similar small expense.
  • Credit Card Only – For the expenses which allow you to use a credit card, use the credit card for them. Also, keep the money from your saving account aside in a liquid fund or short-term fixed deposit. You can later use this money to repay the Credit Card dues while you earn some interest on this money.

The best way to use a credit card is when you already have money in your savings account, and you need to spend it on a specific goal. For example, let’s say you want to buy large electrical appliances for your home, and have accumulated enough money already.

You can use your credit card for the transaction, earn payback points and later use the collected money to pay off the credit card dues.

5. Plan to Pay-off Expensive Debts

If you have a personal loan and similar debt on your balance sheet, you should plan to repay the debt as soon as possible. The simple reason behind this goal is that these debts usually charge a much higher rate than you can safely earn on your investments. Thus, these debts are actually draining you financially, rather than helping.

With any type of bank loan, you can start prepaying after your sixth EMI. Thus, consider paying something extra from your seventh EMI onwards to reduce your due amount faster.

With these 5 financial management steps, you can ensure to be better prepared for any emergencies in the future. Also, you will be in a much stronger financial position over the years.

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Frequently Asked Questions (FAQs) for Term Insurance

This being a term plan doesn't offer any payout after maturity or expiration date.

Each insurance company has its own term insurance premium calculator. If you want to check out the premium quote, go for the iSelect Star term plan calculator. It gives a premium amount based on your age, gender, habits, education, and annual income.

You can purchase an iSelect Star term plan anytime between 18 to 70 years of age.

It depends on your needs. For example, if you want to cover a child's education or wedding expenses, you have to include them in your coverage. Your premium will be calculated accordingly.

If your key purpose is to give your Family financial protection, go for the term insurance plan. And if you want some savings, in the end, go for a traditional life insurance plan.

Go for at least 12 times cover than your annual income. Or you can go as far as 20 times coverage as per your needs.

The right time is when you don't have anything to keep your Family safe from financial storms, and they rely on you for financial needs.

If you are unable to make the payment or suffering from a terminal illness, a term plan pays a part of the sum insured to treat your disease.

Term insurance riders are attachment or endorsements made, while taking the term insurance policy, as a supplementary coverage to policyholders. Apart from the core death benefit, term insurance riders offer below-given additional benefits:

  • Accidental Death Rider When a person suffers from a terminal illness, his/her family ends up spending a significant amount in treatment and medical expenses. Accelerated death rider pays a part of the sum insured in advance to cover such costs and save the family from running out of cash.
  • Accidental Disability Rider If the policyholder can't pay the premium because of an accident or permanent disability, a sudden disability this pays the premium on behalf of the policyholder till completion of policy term or for a defined duration.
  • Critical Illness Rider If the insured person gets a heart attack, cancer, or any other critical illness, this rider pays a lump sum on valid diagnosis.
  • Premium Waiver Rider If the policyholder is unable to make payments due to income loss or disability, a premium waiver rider waives off all future premium payments. And the term policy remains active until the expiration date.
  • Income Rider: The rider ensures that your family receives regular income + sum insured in case of unfortunate demise of life insured.

Anyone can go for life insurance as it offers some savings after the maturity date, but it doesn't cover the protection of your family . The best term insurance plan is solely designed for taking care of loved ones if something happens to you. Term plans act as a shield between your family and sudden financial fall. They make sure that your family lives a healthy life even after you. With a little amount paid per year, you can be worry-free from the family's financial conditions.

Questions that you need to ask while buying Term Insurance?

  1. 1. Amount of premium you have to pay based on your age, habits, education, and monthly income
  2. 2. The total number of benefits covered in the term plan. Do they include benefits that you care about the most?
  3. 3. How to save money on tax if you pay for the term plan?
  4. 4. Do they offer regular income options?
  5. 5. Can you change the coverage and premium in the future?
  6. 6. Does the claim consider valid if death occurs outside India?
  7. 7. Which kind of death is not covered by insurance?
  8. 8. Can NRIs take term insurance? If yes, what are the conditions?
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