It’s Father’s Day today and also time to relax and be pampered by your family members. After all, on a day like this you need a little appreciation for taking care of your family like a Superman. However, it is also time to reflect on your financial planning needs as just providing for your family’s daily needs is not enough. As the main breadwinner of your family, it is also your duty to make their financial future secured, which you won’t be able to do unless you succeed in keeping your financial house in order.
Here’s what you need to do to successfully manage your finances:
1. Take stock of your financial needs: The first thing you need to do is to take stock of your present and future financial needs. For that you should assess your net worth, which can be done by listing all your assets and liabilities. One you have done that, then your net worth can be calculated by subtracting your liabilities from your assets. This will help you determine your current financial needs. One you have done this, try to find out your future financial requirements, such as how much money you will need for your post retirement life or for buying your dream home or for the marriage of your children. Based on those requirements, start saving and investing as much money as you can.
2. Start saving and investing early: You must have heard the saying – ‘The early bird catches the worm.’ This holds true for financial planning as well. The early you start, the bigger are the chances of reaching the financial goals of your life. What is more interesting is that “you won’t need any big amount of savings if you start saving and investing early in life. This is done with the help of the power of compounding. Time is your best friend. Use it wisely. It’s the most precious resource that can’t be bought,” says Atul Surana, Certified Financial Planner, Catalyst Financial Planning.
3. Plan for your post retirement expenses: With rising life expectancy and growing costs of living, it has become prudent to plan for one’s retirement. And, according to experts, this should be done from the time one starts earning. This, however, is hardly the case. People usually don’t plan for retirement until they grow old. But then it becomes too late for them to accumulate a nest egg sufficient enough to last them through their golden years. If you have also not started saving and investing for your post retirement life, then it is time to go for that. Otherwise how will you be able to take care of your family after your retirement? Starting early is the only way out to lead a comfortable life after retirement.
4. Insure Yourself: Insurance is an important tool of your financial planning process, specially for the postretirement stage. Having a steady flow of retirement income is one key aspect that everyone desires. Insurance takes care of this aspect and also provides you cover against disability and health issues (which are very common in old age). Hence life/term insurance and retirement plans are your best options to start investing in at a young age to reap the benefits at a later stage in life.
Also, to ensure that you remain on track for your investment goals, it is necessary to insure yourself and your family. Buying a health plan for your entire family would ensure that you don’t deplete your savings and investments in case a medical emergency strikes. Similarly, have a life term plan in place for yourself, especially if you have dependents.
Always follow the golden rule that the earlier you start investing, the lesser is the premium and the more are the benefits compounded over the years. Check your insurance policy cover every 1-2 years and ensure that they are sufficient as per you future requirements. A sum assured worth 10 to 20 times your current annual income would ensure that your dependents do not suffer financial hardship in case something happens to you.
5. Review your insurance and financial needs: Only opting for some investment plans and getting yourself insured is not enough. You also need to keep reviewing your insurance and financial needs at different life stages. For example, when you are single or have recently got married, then your financial needs may be different. However, your financial and insurance coverage need to be reviewed once you have kids. Increase in liabilities too acts as a trigger to go for a larger insurance cover. For instance, buying a car or a house on loans may make you feel good, however that also adds to your liabilities, forcing you to seek cover for them. Thus, if ypu want to be fully protected, then you should keep review your insurance and financial needs at different life stages.