“One who has taken birth is sure to die one day. But every human being lives as if they are immortal.” This is a part from one of the biggest epic poems of India, Mahabharata, where King Yudhishtira is replying to a question- What is the biggest wonder in this world? This is exactly why most of the people choose Endowment policy or Money back policy over a Term policy. Even when people take accident risk cover for their car they often forget to cover the biggest risk, their sudden death.
Not only about death, sometimes we don’t even try to think about our future. A 20-year-old person has no idea about the expenses that he/she would have to bare when they reach 30 years. This is why they have to seek financial help from their parents or a personal loan when the timer rings for a marriage.
One would have taken another burden- ‘Home Loan’ – by the time he/she had paid off their personal loans. A person takes in the burden of lifetime loan repayments to own a house, thinking it as the biggest asset one could have. But, is the car or an own house a real asset?
A real asset is one which is capable of providing income. So, a car or house for which we pay a fixed amount every month should be added into the list of things which are the burden to our income, rather than to the list of assets.
We will regret ‘saving and starting earlier’ only when new expenses are added into our lives, such as expenses after getting married or the birth of a child. But still we aren’t ready to accept the fact – ‘better late than never’.
A 20-year-old may have no idea about his/her living expenses after ten years, similarly one might not even think about a child’s education expense 20 years from its birth. After 20 years, this will lead a person into taking another liability – ‘education loan’.
How many people will think about the expenses they have to bear after 10-15 years, while they take an education loan for their kids? This will probably be the time for a retirement life with no income. Even when few of us are getting a monthly pension from the government, it would be hard to meet the expenses most of the times.
During retirement life, if income is low and living expenses are very high due to inflation, and maintaining a lifestyle like before is becoming hard, then we will experience financial instability for sure.
Rather than regretting about the bad financial decisions we had taken in our life during the ending years, plan for a better life while you are young and healthy, a plan that will lead you to financial freedom.
Financial planning is not rocket science. It is just a preparation for the long run to achieve financial freedom. We should consider three main things to enjoy financial freedom, and the first one is thinking about what king Yudhishtira told about the biggest wonder in Mahabharata.
What if death comes our way suddenly? Life of our beloved ones won’t be easier anymore. People who pay for their car insurance on time and without a break should also consider the above situation. One should
You should ensure the financial security of your family so they can handle every financial expense easily even in your absence and Life Insurance is the key to these situations.
Most of the people mistake Endowment policy, Money back policy or ULIP as Life Insurance. But insurance and investment are two sides of a coin. So to ensure a life one should get a Term policy.
If the decision is made to have life cover then the next step is fixing the insurance amount. The insurance amount should be at least 10-15% double the income. One should invest the specific amount of money acquired from either fixed deposits or debt funds to life cover, keeping in mind that even if something happens to us then our family should be capable of maintaining the same lifestyle and expenses without any problem. For this same reason, the amount of insurance is made higher. To have a 1 crore worth term policy a 35-year-old person should only pay the yearly premium of Rs 11,000-Rs 13,000.
Health insurance is the next thing one should have in his/her life. A good percentage of people who get admitted into hospitals don’t have planned their finances well making them fall into debt traps. These days, medical costs are skyrocketing than the normal inflations rates. In this modern world where a lifestyle of a common man is undergoing rapid changes and the chances for health-related risks are higher, taking a health insurance is a must thing.
Those who have great expectations about their future should also sow right amount of seeds in the right place for their future source of income. Sowing time, method and the wait for right harvesting time will result in reaping good products. A good example or method for planned investment is investing in Equity Mutual Funds.
One should invest by foreseeing amount that will be required to fulfil future needs. For example, take that a 30-year-old has a yearly expense of Rs 3 lakh. If the yearly inflation rate is 7%, then when the above-mentioned person turns 60, he will need about Rs 23 lakh for a yearly expense.
Starting to invest form early age will ease the financial planning procedures. Investing every month is the best way for long-term investments. If a 30-year-old person invests an amount of Rs 10000 every month into mutual funds and gets 12% as returns, then the person will get about Rs 3 crore by the time he/she turns 65 years. This is the magic of long-term investments.
In short, if you have a term policy, a health insurance and a regular investment in mutual funds (SIP), then it can be said that you have opened the way to Financial Freedom!