Many youngsters who recently started earning know how to earn money but don’t know or least know about Saving or Investing their hard earned money and choosing wrong investment products which yield them negligible returns at the end. Most of them are not considering the inflation and are unable to expect the amount they need in future for various Short-term and Long-term financial goals. These wrong investment steps resulting them in financial crisis. I have seen many young investors selecting wrong Investment products for just saving the tax and not considering many important factors for smooth sailing of their financial journey. This article gives Golden steps or rules to be followed by every Investor for a safe financial Journey:
Top 5 Golden Steps Towards a Safe Financial Journey:
1. Ensure an Emergency Fund:
Your first step towards your financial journey is maintaining an Emergency fund. As a thumb rule, it is advised to maintain an emergency fund for the sum which is equal to 6 months of your net monthly salary. One simple technique to maintain this emergency fund is, start a SIP in a good Liquid fund and keep on investing every month into this fund until you attain the required sum and stop the SIP. Do not touch this amount unless you have any emergency situation like any medical emergency or the situation like job loss etc. A good liquid fund would yield almost 10% per annum on your corpus and on top of that if you keep this amount more than 3 years, you no need to pay any tax on this corpus.
2. Ensure you have a Term Policy:
The second most important step towards your financial journey is ensuring sufficient life insurance to take care of your dependents during any uneven situation. I advise, do not take any Endowment policy or Money-back policy. These policies are expensive and not-sufficient to take care your dependents in case if you face any uneven event. Take a term policy from a good Life Insurance Company. Simple technique here is, take a term policy for the sum which is equal to 8 – 10 times of your Annual Gross salary. Suppose your annual gross salary is 10 Lakhs, then you should take a term policy for 80 Lakhs – 1 Crore. Due to entry of new Life Insurance companies, the premium rates are available at very competitive price. If you opt for Online Term plan, then you get a minimum 15% discount on your premiums. But selection of Insurance company is very important, need to check their claims history. Taking riders like Personal Accident, Critical Illness etc are added advantage to your policy.
3. Ensure you have Health Insurance:
All your family members should be insured with sufficient Health Insurance. Though your company providing Group Health Insurance, it is highly recommended to take one more Health Insurance policy for your entire family. This will be very helpful during any job loss situations. Do not include your parents into this family floater policy. Take separate Individual policies for your parents. Recently Union Government has increased the limit of reduction of health insurance premium from Rs 15,000 to Rs 25,000 and for senior citizen this limit is increase from Rs 20,000 to Rs 30,000.
4. Ensure 25% of income is saved:
Whether you are earning 10,000 or 1 lakh, make sure that you are saving 25% of your income every month. After paying all your Insurance premiums, loans and other personal expenses, the left over is your monthly savings. Ensure this savings should not be less than 25% of your monthly income. Except Home loans, the other loans are highly recommended to pay off at the earliest as the Home loans offer up to Rs 2,50,000 in tax benefits as interest and principal.
5. Ensure Your Personal Goals are defined:
Defining all your short-term and long-term personal goals is very very important step to complete your financial journey. Attaching each financial goal to an appropriate Investment product is crucial. For all your short term goals, attach with low-risky investment product, such as Bank RDs, Debt funds etc. Similarly, for all your long-term goals, attach with moderate-risk or high-risk products, such as Equity Diversified Mutual funds based on your risk appetite and time horizon. One simple technique here is, take Mutual funds through SIP approach for longer period would yield high returns.
These simple five steps would take you to the financial destination by taking care of all your needs. Take help from any good financial adviser in selecting right insurance plans and investment products.
I am Ravi, live in Hyderabad, India. I am passionate about Personal Finance and Investments through Mutual Funds. I have written many articles on Personal Finance for Youth and Students in India. I would like to bring exposure to Savings and Investments among the Youth and Students in India…