Planning is something we all do. We plan when to buy a car, when to switch to a new job, when to get married, when to buy a house etc. Every major event in our lives require careful planning. Now what about finances? Do you regularly set aside some time to think about how you are going to manage your financial life? Sadly many people put off financial planning for later, and this is a big mistake. During times of inflation what happens to your savings or if the breadwinner of the house were to pass away how is if the family going to handle the expenses. Financial planning can help take care of all that.
Secure Your Family And Finances
Many people are just so focused on investing and seeing their assets grow that they completely forget to cover their risks. It must be noted that insurance is a crucial element of any financial plan. Having adequate insurance cover is necessary to protect your family and finances.
The payout from a life insurance policy will help your family financially in the event of your death. A health insurance policy can cover your medical bills and also get you the best treatment from some of the top doctors in the country. You can also insure your car or bike from accidental damage or theft. With the different varieties of insurance products in the market, there is protection for everything.
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Start considering what your investment options are when you land your first job. Seek professional help if necessary. You can look into high-risk investment options that generate high returns when you are in your 20s but as you grow older consider options where the risk level is lower since you have a family of your own to think about.
Mutual funds are a good option for those who want to invest in equities and bond and maintain a balance of risk and return. If you want to buy direct equity or share, see to it that you know how to analyze a share stock before proceeding ahead. The level of risk here is high. IPOs launched by reputed businesses are a good option when you are looking at long term investment options with low risk.
There are various investment options that can help you save taxes. If a large portion of your income is going towards taxes, you must consider investing in different tax-saving options. Some of them are:
- Public Provident Fund
- Life Insurance Policies
- Health Insurance Policies
- National Savings Certificate
- Senior Citizen Saving Scheme
- Equity Linked Saving Scheme (ELSS) Funds
- Unit Linked Insurance Plans
Do you have debts to repay? Having debts is not a bad thing but poor management of it can land in you in an ugly trap.
If you have taken up loans and/or credit cards, find out where you are spending the most in interest and try to pay off that first. Set aside a certain sum from your monthly income to pay off what is due. If you have a student loan then your focus must be to pay off the loan once you land your first job. Student loans usually come with high interest hence it is good to repay it as early as you can. If you have credit cards, try to pay off the whole amount rather than just the minimum so that you would not have to incur other charges.
Loans are not all that bad. You are eligible for tax deductions if you have availed a home loan. When you take a loan to buy a house, you can claim deductions under Section 80C and Section 24 of the Income Tax Act. Section 80C of the Income Tax Act allows individuals to claim tax deduction of up to Rs. 1,50,000 on the repayment of the principal loan amount. You can also claim deduction up to 2,00,000 under Section 24 for the amount spent on paying the loan interest.
Do not wait until you are 40 or 50 to plan your retirement. The best time to start saving for retirement would be a year or two after you have landed your first job. There are a number of retirement products available for investment in the market.
While you are still working (pre-retirement) you can look into schemes such as New Pension Scheme, Employees’ Provident Fund, Exchange traded funds through Index or Gold, Equities and Bonds. The returns from these will ensure you have sufficient funds with you when you stop working.
After you have retired, you would require schemes that generate regular income. You could consider investing in Monthly Income Schemes, Senior Citizens Saving Scheme and Pension Plans that are provided by mutual funds and insurance companies.
Retirement planning is very essential if you want to have a financially independent life post retirement.
Having a financial plan helps see the big picture. Based on what your short and long term goals are, you can determine how to best utilize your funds.
With a financial plan you can keep track of whether you are able to achieve your goals or not. You are also better equipped to deal with the impact of inflation, especially during retirement when expenses seem to mount. Sound financial planning can also help you meet unplanned expenditure and emergencies without causing any strain to your finances.