Financial Management is a vast term consisting of different subcategories but for the sake of simplicity, it can be referred to as the art of managing one’s financial assets.
We attempt to simplify the concept of financial planning for our new wannabe crorepatis. Since most of these youngsters have just begun to draw out their salaries, they do not know the intricacies of managing personal finances and investing in a way that lets them sustainably grow their wealth for the long term.
Everybody should start saving and investing right from their first salary. However, before you begin saving for the future, you must prioritize the protection of health and life. It is one of the most essential but neglected parts of anybody’s financial planning, especially amongst new adults who have just opened up a stream of income for themselves.
Buying Life Insurance:
The first insurance you purchase needs to be a life insurance. Wondering why it is so? Well, we generally buy our first life insurance after taking advice from our dads. It is an endowment policy, and the biggest problem with traditional endowment policies is that they have very little coverage and the premium paid is comparatively high.
The modern-day solution to this dilemma is to buy a “Term Policy”. The advantage of this Term Policy is that the premium paid is very less, coverage is quite high, and the premium at the time of buying the policy does not change very frequently. Thus, if you buy a term policy at the age of 21 as a non-smoker and non-drinker for 70 years, the premium paid is hardly 6000 for a life cover of INR 50 Lakhs. This comes out to be a mere INR 500 per month, and you’re covered for a handsome amount. It makes your family safe in case any mishap occurs in life.
Please remember to add riders of “permanent disability”, “loss of income”, and “critical illness” to the term policy as the premium is significantly low and does not change easily. Please DO NOT buy these policies separately under any circumstances as they’re far more cost-efficient under the Term Policy arrangement, especially the “critical illness” rider which is often coupled with health insurances to elevate the cost of the policy to an inaccessible degree.
Buying Health Policy:
The second policy to buy immediately after a Term Policy is to buy “Health Insurance”. Generally, people do not buy this policy since they assume that it is already covered in the Group Health policy given by the organization they’re employed by.
The problem with your workplace’s Group Health policy is that it ceases to be in effect the moment you leave your job for any reason whereas when you buy health insurance privately, you will have to wait for just two years for certain conditions to be covered. Hence, you must buy Health Insurance as soon as you receive your first salary.
One more aspect to be considered while buying a health policy is to purchase a sufficient coverage amount. For somebody who’s just starting out, INR 5 Lakhs may be adequate but this figure can alter over time and needs regular reviewing. Oftentimes people can’t assess the right coverage amount and are lured by low premium costs which leads to repentance later on. Hospitalization expenses tend to skyrocket in good hospitals, causing families to exhaust all their savings just to clear the bills.
Both life and health insurance can be covered under two to three thousand a month, which is about 8-10% of an average person’s monthly salary. Even someone earning a starting salary of INR 10-15k can plan to buy a life cover of INR 20-25 Lakhs and a health cover of INR 2 Lakhs with a premium of around just ₹1500 per month.
In the coming articles, we will elaborate more on the points to be considered while buying Insurance. Once you’ve got your insurance structure figured out, the next step is to save systematically. This will allow you to have an ample amount of money to spend despite having a sizable security fund.
ALWAYS REMEMBER: THE KEY TO FINANCIAL NIRVANA IS TO PLAN FOR SAVING FIRST AND SPENDING THE LEFTOVER. THIS SAVING IS THE KEY TO GROWING WEALTH, NO MATTER HOW SMALL IT IS.
