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Financial Planning

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Stage 2: Marriage And Settling Down

In this stage, you will find yourself with a higher salary and you will probably be looking to settle down and get married. 

Some main features of this stage are -

  • You might be married, with or without children. 
  • You may have planned to purchase real estate 
  • Personal goals would include progressing in your career, caring for your family (parents, spouse, children if any), enhancing lifestyle (vacations, car, other regular lifestyle expenses)
  • List of financial goals might include planning for children’s education & marriage, house purchase, own retirement, providing for parents, purchasing a property as an investment to yield rental income
  • You may or may not have adequate life insurance and health insurance for you and your spouse and children.
  • You will feel the need to grow wealth, and build a better contingency reserve.

Let us look at some of the important financial concepts we should prioritize in this stage.

I. Getting Proper Insurance for You and Your Family

It is very important to first prioritize your own life insurance requirement. 

Also, it is advised that you buy life insurance in the form of a simple term plan and not any other type of product.

The premium for a term plan of this kind is the lowest and the cover you will get for this premium is the highest. 

This is the best way to protect your family in case of your untimely demise, especially if you also have any liabilities like a home loan / car loan. 

A financial planner can help you to do an exact assessment of your insurance requirements and suggest the most suitable policy from the universe of hundreds of policies.  

Also, for health insurance - take a family floater that covers your dependents. 

Ensure that you have sufficient cover for each member of the family, considering that medical costs can be quite high these days. 

II. Building a Contingency Fund

It is important for you to assess your contingency (emergency) reserve. 

This reserve should contain 6 to 24 months of your monthly expenses, including the charges of your EMIs if any. 

You can hold this fund in a liquid mutual fund scheme. This should be used only in case of a financial emergency, which can occur at any time. 

Please remember to not use this fund for big ticket expenses like contributing to a new car or a vacation. You never know when an emergency might occur and how much cash you will need. 

An economy is often hit with periods of recession, following which you will need to make sure that you have enough funds to pull through.

It is at times like these that you will require a good emergency fund, and that is why it is essential to have one.

III. Achieving the Right Asset Allocation

When you approach a financial planner, the first thing they will want to focus on is your asset allocation.

Asset allocation implies the decision of how much to invest into each of the asset classes – equity, debt, gold and cash, and in which specific instrument. 

The objective of developing an asset allocation suited to you, is to ensure that you achieve all your life goals like purchasing property, your children’s education and marriages, your own retirement, family vacations and so on. 

For this, your financial planner will take into account - 

  • Your risk appetite and tolerance; 
  • Your cash inflows and outflows; 
  • Your life goals and their priorities; and 
  • Your existing assets and liabilities.  

Your planner will also ensure that as your goals approach, your goal corpus exposure is shifted from equity (unsafe, high risk) to debt (safe, low or no risk) instruments. This protects the corpus that you have built. 

Therefore, your equity exposure depends on the proximity to the goal and will be different for each goal that you have.

Follow your plan and remember to invest regularly into the markets, through ups and downs. Staying in the market is the key to successful long term investing. 

IV. Saving Enough Money to Buy a House

It is next to impossible to fund our own house with our own funds. Therefore, taking a home loan is usually considered essential to buy a house. 

Home loans are not a cheap affair. It is important to save money to prep for the debt obligations, and following the tips given ahead can help you plan for this loan efficiently -

1. Don’t let credit card debt suck you dry
If you have a large amount of debt, then there will be no point in trying to save money as the interest you’ll be paying on your loans will far outweigh any return you will see on any savings. 

Therefore, it is important to get rid of your accumulated debt first. 

Also, before you take a home loan, you should put yourself in a position where you do not have any other debt to service. 

Not only will that free up cash to service your loan but you will be able to take a higher loan simply because you are not bogged down by other such payments.

So the first step is to clear your personal loans and credit card debt.

2. Start saving with your very next paycheck

You can start investing in an equity fund.

You can start a systematic investment plan (SIP) where a small amount gets channelized every month towards a mutual fund of your choice. 

If you do not have a long way to go, opt for debt mutual funds and select that type of debt fund which matches your time horizon and risk appetite.

3. Stop the outflow of expenses

Curb your expenses and you will be surprised at how the small savings add up. 

You can start by eating at home sometimes instead of eating out multiple times a month. Reduce your eating-out budget and you will see what a big saver that is. Not to mention, home-cooked food is much healthier. 

You can choose to cut down on cigarettes and alcohol too. Not only will you be healthier but even richer. 

Cancel unnecessary magazine subscriptions or gym memberships if you aren’t using them. All these small moves will impact your bank balance positively.

4. Act on a definite plan

Do you have an idea how much the house is going to cost you? 

For instance, if you plan to buy a home that costs around ₹50 lakh, then you will have to ensure that you have ₹10 lakh as a down payment. 

Therefore, it is better to work with definite figures or else your savings may wither below the actual amount that you need. 

Also, work with a time frame. Do you need that amount within a year or within five years? Once you determine that, the actual investment avenue can be determined.

V. Making a Will

In this stage, with your plans to make a family, or considering that you might already have a family, it is prudent to have a will in place. 

In case of your untimely demise, your will ensures the transfer of your wealth as per your wishes mentioned in the document, and it will ensure that your beneficiaries get access to your assets without spending too much time and money. 

Also, without a will, your beneficiaries would have to run from pillar to post to prove their legitimacy and thus spending lots of time along with money in case there is no Will.

With a will, beneficiaries can get these assets either tax-free or they can pay tax at a lower rate than they would have paid in case of getting these assets without a will. 

Any person who is above the age of 18 is eligible to make a will. 

They should be of sound mind i.e., capable of understanding their actions and should be free of any influence at the time of writing the Will. 

There is no need to wait to create lots of assets/wealth till you turn old (60 – 65 years of age). 

This is because, many times, people in their old age suffer from physical and mental illnesses. Sometimes they lose their capability to understand their priorities, which can prevent a person from making a proper will.

A will can be made offline or online through a lawyer or by using websites providing such services, respectively. It is not necessary to register a will but it is preferable to increase its legal power.

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