We follow simple tips like drinking more water , walking and exercising etc to keep our health fit. In the same way, here we are going to discuss important things to keep your financial life healthy.
1. Start early and get benefits of compounding powder.
We see many people think that its too early to think about financial planning. We are still in 20’s and 30’s ,why to think about long term goals like retirement ,children higher education and children marriage from now onwards. Lets think about it when we are about to reach the goal. But we must need to understand that if you start investing early it will exponentially increase your money over time.
Ravi starts at the age of 25 and invest 5000 per month for 10 years and stopped investing and wants to take that money when he is 60. If we expect 8 % return , then at age of 60, he will get nearly 40 Lakhs, where in he just invested 3 Lakhs.
Shiva started investing 5000 per month from age of 40 for 20 years ,If we expect same 8% return, then accumulated amount at age of 60 is 30 Lakhs. Though he invested 12 Lakhs, the total amount he got is 30 Lakhs wherein Ravi invested just 3 Lakhs he got 40 Lakhs. So if you give time to your money , then it will grow exponentially due to compounding powder.
2. Have Goal based investing.
Before investing money, always advisable to note down your short goals , Mid term goals and Long term goals and then based on your goals calculate how much amount is required for that goals and look for best options to fulfill the goal.
Short goals which you want to get it done within year . Example may be house part payment.
Mid term goal which is having nearly 3 to 5 years time frame. Example may be planning for a car and abroad trip.
Long term goal comes which has to be fulfilled after than 10 years like retirement , children studies and children marriage.
So before saving for these goals, calculate how much amount is needed for these goals to fulfill in near future. Suppose for child higher education now it will cost nearly 10 Lakhs . So check in how many years your child is gong for higher education . If your kid is 1 years old, nearly another 15 years , you need big amount for higher studies.To find out approximate amount for studies after 15 years, with 8 % inflation rate you need 30 Lakhs for your child’s education. But dont get tensed. You can reach the goal of this 30 L by investing just 8000 per month expecting 10 % return for these 15 years. In the same way calculate amount required for each goal and after considering inflation amount should be invested per month to reach the goal.
Based on your risk level choose any option to invest which are discussed in my earlier article “ Top 10 Investment options to make your money grow”
3. Always diversify your portfolio.
Don’t keep all your eggs in same basket. Always use diversification to protect your investment from any risks associated. We see people they keep all their money in real estate , But what is the situation if real estate market is down and your require money at that time itself. And we are seeing other set of people investing money in gold as we are seeing good results these days. But what is the situation if gold rate drastically come down. So to keep your portfolio balancing, always recommended to distribute your investment to different products like some investment can be done in mutual funds, real estate, shares , gold etc.
Based on duration of your goal, you can choose the appropriate investment option. for example , you need money in with in year or two, its advisable to choose bank FD option to protect your wealth . If goal is long term you can safely invests in equity mutual funds.
4. Have adequately insured.
Fine..you planned your goals well and properly invested to reach your goals. But what if unfortunately death or accident or permanent disability or severe health issue occurs. Yes..that is the reason why to protect your wealth from unfortunate situations, you must need to have adequately insured. It is recommend you to take term cover to cover unforeseen situations like death and have sufficient heath cover as well. There are many vanilla insurance policies to cover your life , you can choose from either online or offline mode.
As a thumb rule, you must need to have life insurance 8 to 10 times of your annual salary. For example, you have annual package of 10 Lakhs, then you must need to have 80 Lakhs term cover.
5. Buy the investment products which you understand better.
In past few years we are seeing many people are purchasing ULIPs without understanding how it works . Agents are mis-selling these products by telling that just pay some amount for 3 to 5 years and get attractive returns. But the fact is ULIPs are for long term purpose and most of your payments will go towards high charges in initial years, so investor are seeing losses when they take money in 5 years.
As another example we see most of the people having LIC policies, but have you ever checked trhe returns on your lic policy. and how much you will get when you surrender the policy incase of emergency of money . You will be shocked if you know those facts.
So, before investing in anything, get complete information on that product and then see it suits your requirement in reaching your goal.
Hope , you follow these basic steps to keep your financial life healthy.