Our financial life comprises several components and monetary well-being depends on how well we control them. While there are financial planners to guide us, the ultimate responsibility is ours to ensure we take charge of the components that define success in the long term.
Let us take a look at some of these crucial aspects you must take charge of without a delay:
The coronavirus pandemic has hurt income in a big way, with many being pink-slipped or forced to take a pay cut. With revenues under pressure, several organisations have resorted to cost-cutting measures.
A drop in income directly influences almost all financial aspects and you need to reboot your finances so that they align with your current cash flow.
It is always handy to have more than one source of income and there are several ways to do that. You can freelance. It not only augments income but also helps you build a solid network that comes in handy in the future.
A passive income ensures you can address your day-to-day needs and crucial commitments such as paying EMIs, insurance premiums, mutual fund systematic investment plans (SIPS), etc, hassle-free.
In these testing times, when income is stressed, taking charge of expenditure becomes even more essential. Even otherwise, you should strictly monitor your expenses and make sure a significant portion of your income is spent on needs and not wants.
Binge-spending not only hurts financial goals but also leads you towards a debt trap that can become a noose.
It’s crucial to monitor your expenses and see where money is flowing. In the digital age, many apps allow you to track your spending and even set up alerts if it’s beyond a certain threshold.
It’s a good idea to draw up a budget and make sure your expenses are well within limits. Chewing more than you can swallow is sure-shot way to trouble.
Savings and investments
Savings and investments are two crucial pillars of personal finance that deserve your attention. While the former comes in handy during rainy days, the latter helps your money grow and build a corpus for different life goals.
If you follow the 50-30-20 budget rule, then you should ideally be saving 20 percent of your income. Equally essential is to channelise the savings into various investment avenues to enhance your riches.
Today, many financial instruments serve the twin purpose of savings and investments. For instance, SIP allows you to save and grow your money simultaneously. SIPs are a kind of forced savings that double up as investments as well.
To remain on a solid footing, divert your savings into a mix of fixed-return and market-linked products. A blend of both not only provides stability but also helps beat the effects of inflation.
Insurance—life and health
The foundation of a sound financial plan, insurance shields your finances from taking a dip in the face of uncertainty. While it has always been crucial, the Covid pandemic has accentuated its importance to a different level.
Insurance—life and health—is not a one-time exercise and needs to be reviewed at crucial milestones such as marriage, having a family, etc.
Evaluate your insurance needs and plug the gaps at the earliest. For life coverage, choose a term plan that provides substantial coverage at an affordable premium.
If you already have a term plan, gauge if the sum assured is adequate or not. If not, swing into action and make up for the shortfall at the earliest.
Similarly, given the sharp uptick in health care expenses, health insurance is an absolute must. A family floater plan is a convenient way to avail coverage for the entire family.
For wider coverage, it’s advisable to opt for a top-up plan, the benefits of which kick in after you have exhausted the deductible amount of your base plan.
Summing it up
Taking control of these essentials of your financial life can help you ride out a crisis with ease. It will help you meet essential life goals and ensure you are on path to financial freedom.
(The author is President & Head, Personal Wealth Advisory at Edelweiss Wealth)
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.