Late to plan finances? – Top 5 To Dos
It is never too late to start planning and investing as per the plan. The day you realize the significance of asset allocation, financial planning, goal-based planning, investing in good quality businesses consistently for long-term wealth creation, a negative impact of inflation on your finances, absence of concrete plans for child education, marriage, retirement expenses, steep increase in education and medical challenges year on year – don’t repent on the time lost and you should get going. It’s true that power of compounding can’t be compensated by investing in bulk as you approach your goal. Investing in small quantities regularly every month can help you make a huge corpus for your long-term goals.
In the context of Indian households, we get into our first job, work day and night, buys a home, gets married, buy a home resulting in a huge EMI on the back of the mind in addition to increased family commitments. Around late 30’s or early 40’s, as we close down our home loan, we realize the significance of long-term investing and understand the significance of planning our goals. Expenses rises as mandatory expenses increases and investible surplus get squeezed as a result. Till that time, what we have to show for more than 15 years of relentless hard work at job is a home in which we reside or one we bought for investment, a sizable amount of money in FD’s or saving accounts, PPF investment and 2-3 insurance cum investment plan to show. Most of the times there’s no term plan bought and hence underinsured (no term plan).
If you are one of such individuals – relax. We can’t change the past but for sure you can influence the future for sure. Don’t be disheartened, repent or develop negative vibes but instead take corrective measures immediately.
1. Evaluate your current insurance coverage and buy a term plan (if underinsured) – Though we must have come across the phrase ‘Keep your insurance and investments separate’, we seldom implement it. It is very significant for us to understand that we must have an adequate insurance cover at a low cost and term plan is the answer to it. Not buying adequate insurance can be detrimental to your loved ones in your absence – not only emotionally but financially we well. So it’s your responsibility to buy an adequate insurance cover so that you can concentrate all your additional surplus to your investments. Make sure your spouse is aware of this policy in the first place. Don’t compromise buying of a term plan at any cost.
2. Buy a family floater irrespective of medical cover by the employer – Irrespective of medical coverage by the employer, buy a family floater for you and your family and get adequately medically insured. Medical inflation is increasing at an alarming rate and every family must get themselves adequately medically insured to take care of expenses in case of any medical uncertainty. Also buy adequate critical illness cover, if you don’t have one.
3. Stop/Redeem your inefficient policies to free up more investible surplus – Money to invest is only finite. As much as it is significant to invest more to fulfill your long-term goals, it is equally important to stop/redeem your inefficient policies which you some advisor may have sold to you early in your initial years at the job. Evaluate your existing investments, get hold of latest account statement, understand the taxation aspect, check the redeemable clause and accordingly take the decision. Don’t be in two minds ever. Have a clarity as to if what each of your policies/investment instruments fulfills what purpose of your financial plan. Don’t be emotionally attached or if corpus is lower than your investible amount. Never leave your money invested in investments which are not going to yield you returns in the future. Take a day off from your job if required, if required to submit documentation to stop/redeem such policies.
4. Initiate your SIP’s on priority – As an investor, one must understand that investing in equities is a must to fulfill your medium to long-term goals. List down your goals, calculate how much you need to invest to reach your goals and start your SIP’s accordingly. If your monthly investments at present don’t fulfill all your requirements, don’t be disheartened. Increase your SIP’s as your salary increases. and stay away from thematic/sectoral funds. If you realize you can invest sizable amount via SIP’s go ahead and start investing. Don’t spend months and years researching – have a timeline and start investing.
5. Review your current expenses – It is always prudent to review your expenses time to time. You can plug-in leaks, how much small it may be. Review you credit card and bank statement and you will get very good pointers to that. There are always some gaps, which can save you money without compromising in your current lifestyle. It may be switching to a cheaper mobile plan( which you always knew but never took time out in priority), pooling with colleagues to office or going by company transport, eating out too frequently taking a toll on health as well as finances, making smart travel plans for vacations and hence saving on last minute hotel and flight/train tickets etc to name a few.
Financial literacy in India still has a long way to go. So, the time or age you realize the significance of financial planning, get going. Stay focused and execute the plan. Don’t buy or invest in any investment avenue, just to please your friend/colleague. On the contrary, don’t delay something which you know is imperative. It can be buying a term plan, medical/critical illness cover or initiating a SIP. Take some time out and get going. Make your money work hard for you so that you have a financially independent future.