Personal Finance Management

it is very important to manage your finances particularly savings as this will pay for your child's education, child's marriage, house, car and your retirement. By the age of around 23-25 we start earning and our earning years last for about 35-45 years, post that it is retirement. Given the current living standards, we will have 20-25 years of retired life. If we have not saved enough for retirement, there will always be financial tension and likely to burden the children.

So how to plan. in summary are some steps we can take.

1.   Buy a Term insurance plan. This is very important. In an event of an untimely death, this will take care of your family.

2.   Buy a health insurance. This is also very important. A visit to the hospital drains the finances considerably.

3.  Save monthly 30% of your in-hand salary. Budget your month with the remaining 70%.

How much we start earning is important. the more you earn, the more you save. it is important to at least be in the 20% tax bracket. Put 1.5 lacs annually into EPF or PPF as applicable. This will save you taxes under 80C. Also, EPF gives around 8% annual and PPF 7% annual interest. So, you get tax cuts on your salary for 1.5 lacs and also a return as interest compounding annually. The compounding factor makes the lump sum amount meaningful large at the time of retirement.

Buy a term plan which covers disability, and also a health insurance These are very important. The term insurance should at least be 10 times your take hand salary. And for Health insurance, take family floater with a minimum of 5 lacs coverage. If you can take more coverage, more the better.

Save at least 30% of your in-hand salary. These savings will pay for all your large expenses in later life like buying a house, buying a car, children education, children marriage and retirement. Meet all your expenses and pay of your loans with the remaining 70%. Housing loans are usually low on interest rates than other loans and also offer tax savings.

Now the 30% you save invest it wisely. For example, Of the 30%, invest 30% in debt and 70% in equity.If you save 40,000/month. then debt will be Rs 12,000 and equity will be Rs 28,000. Debt investments will be like FD, Bonds, Debt mutual funds, Gold, REIT, INViT, etc where capital risk is lower. 70% invest in equity for long term, at least 5-7 years. or more. equity be like. direct stocks, equity mutual funds, equity ETFs, Indices ETFs.

By following this simple plan. you will have built a nest and a have a lot to smile about.