Whenever we are talking about finance, we become very attentive. We always give preference to our source of finance. The definition of happy person is : A person, who manages his finance well, having love and respect in personal life and has respect, growth in his professional life. Here, I will focus on first happiness, managing finance well. So if you think that you are very young to manage finance, then you are wrong because you can get maximum benefits if you start financial management as soon as possible.
If you are thinking that what is the correct age to start manage finance and how do you divide your income into sections. So here are my few points to divide your income.
Basic Expenditure: Everyone need to spend on their basic expenditure like food, stay, travel, basic amenities, enjoyments etc. Ideally it should be 40% of your income. You should not spend more than this. You can stretch it to max 50% not more than that.
Long Term Investment: If you are doing investment for saving tax only then you are not financially wise person. Let’s say you are in 30% bracket of tax in India, to save 30,000 INR, you have to invest 1,00,000 INR, which is never be a wise decision. Whenever you are going for long-term investment, it should give you huge return that is 5 to 6 times of your invested amount. You should spend 20% of your monthly income in long-term investments for more than 5 years.
Short Term Investment: Before doing any short-term investment, you should understand what is short term investment. It is an investment where you can withdraw funds anytime or in short notice. Let’s say you need to shift your house and your expenditure of shifting is 50,000 INR, in that case you should get funds in a day or two. Short-term investment is constant process, it should not be stop till the time you are getting your income.
Emergency Expenditure: You can not plan your emergency but you can plan your funds for emergency, like medical emergency or any kind of situation where you need funds immediately. You can not wait for few hours or days, so for that sake you should either put funds in your account or you should have Medical insurance or Term Plan. if you have medical insurance from your organization one, then too you should have your personal one. You can put 10% max to this planning. This is variable share where you can decrease and increase in your basic expenditure. That is why I mentioned that you should spend maximum 50% in your Basic expenditure of your total income. Emergency fund is also used for Term Plan as well.
Now you understand your division of your income. Now coming to the point that when should be your family planning closes. Strange! right? I am talking about financial planning, what is relation with your family planning? Yes it is. Kids are your responsibility and it is duty of every parents to help their kids to settle down financially with their income. So your family planning should be done by the age, you are 35. Because it is normal understanding that 25 years is the maximum age to settle down for any individual. It is better advice to settle your kids while you are earning.
I already mentioned the share of Emergency fund in your monthly income. There are majorly two plans you need to take to manage emergency.
Medical Insurance: The moment you are out of coverage from your parents insurance cover, you need to take medical insurance. Despite of the fact that your organization is already giving you medical cover. but you should have your personal one. The benefit is that you are not dependent on your organization and it will be valid till the time you are with organization. The beauty of emergency is that it is Emergency, it comes without notice. Always take Medical insurance as Floater. I took cover, in which my wife and kid is covered with floater. So if all three get sick in the same year, they can use it with floater plan.
Term Plan: If you are having confusion that when to take term plan. First you analyze the value of you financially, like how many people are dependent on you, So what is the best time to take term plan and what should be the mode of payment. Term plan should be taken immediately you have your first kid for sure. My son was born on 13th January and I took term plan a very next day. There are cases where you need to take term insurance, if you have dependents and apart from you, nobody is there to look after. Few people may have doubt that their spouse is their responsibility if she/he is not working. Yes it is, but she does not qualify for term insurance. Your kid is your financial responsibility as well as your duty. Nominee should always be your kid till he/she turns 18 years or settle down instead of any adult one because you took it for your kid. Once your kid is settled then your spouse is qualified for term insurance and nominee should be your spouse. If you have two kids then you should have two term plan.
I hope you like this article and it is somewhat helpful for you. Please do comment in the comment section below.
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Very informative. It is really helpful to plan my finance. Thanks a lot for writing this.