The year 2020 is really a full of surprises that no one has expected. This is really a nightmare to many across the Globe. The Covid-19 virus made the year 2020 as the worst year ever. Economies around the world collapsed, job losses are at peak and several stocks and sectors witnessed a doom. Apart from the Covid-19, Natural disasters and Political uncertainties between India and China leaded to further bloodbath in 2020. Many of us declared 2020 is a cursed year. Covid-19 taught us many lessons particularly with respect to finance. We still don't know when the vaccine would be available to every one in the country. Hence, we need to be more cautious about our Financial planning in the coming year 2021.
Why We Need Personal Financial Planning:
- Financial Planning is nothing but the understanding of your financial goals which includes both short-term as well as long-term financial goals.
- Financial Planning gives you a whole new approach to your budget and tell about improving control over your financial lifestyle.
- The savings created from a good financial planning can prove beneficial in difficult times.
- A good financial plan guide you in helping to choose the right types of investments to meet your needs.
- Financial planning provides security to your family and provides peace of mind for you and your loved ones.
4 Best Financial Strategies for Your Personal Financial Planning in 2021:
Considering the worst scenarios happened in year 2020, one should accept that the times we are living is unprecedented and unpredicted. Hence, you may face additional challenges in your Financial Planning
. You should reprioritizes your Financial Goals
to meet any future uncertainties. Here I am suggesting 4 financial strategies to be considered for your financial planning to make the most of what's left of 2020 and set the stage for a more financially sound 2021.
1. Maintaining Emergency Fund:
The pandemic corona virus triggered an economic dip to many employees and self-employed. Any sudden job cuts or any medical emergency may damage your finances. So, if you aren't prepared for the unexpected challenges that life throws your way from time to time and find yourself in a very difficult spot. Hence, every one has to maintain an Emergency fund to meet any serious financial consequences. But how much you need? Thumb rule says, you should maintain a sum which is equal to a minimum of 6 months of your monthly salary. For eg. if you are earning Rs. 10,000 per month then your Emergency fund should be a minimum of Rs. 60,000. This will give you a cushion to meet your basic needs until you find a new job or business. Where to keep this amount? Many of us keep this amount in Bank Savings account or Bank FDs, but my suggestion is to keep this amount into a Liquid Mutual fund. A good Liquid Mutual fund yields better returns than a Bank savings account or some times Bank FDs. Apart from this, if you keep your funds in a Liquid fund for a period of 3 years then that amount will be considered as long-term capital and you will enjoy the tax relaxations on this. Liquid Mutual funds invest the money into Government Bonds and Securities, hence the security is high and completely insulated from stock market. You can also build your Emergency fund by investing into a Liquid Mutual fund through SIP approach. I suggest do not touch this amount unless you have any emergency situation.Here's my suggested Liquid Mutual funds for the year 2021:
2. Maintaining Term Policy:
Because of Covid 19 there are around 1.3 Lakhs deaths happened in India. Among these deaths, most of them are bread-winners of their respective families. Just imaging, how the family will take care of the future financial needs in the absence of the family's head? Many of our Indians did not have awareness on the importance of having Term policy. The Term policy is an Insurance policy that gives coverage for a specified period of time through a guaranteed death benefit paid in case of death of insured during the specified time period. Premiums are calculated by the insurance company on the basis of an individual’s health, age and life expectancy. If the policyholder dies before the expiry of the specified time period of insurance- Payout will be the face value of the policy. If the policyholder dies after the expiry of the specified time period of insurance- There will be no payout. It is safe to take a Term insurance plan at least 10 - 12 times of your annual income. For eg. if your annual income is Rs 1,00,000 then your Term Insurance would be for the sum of Rs 10,00,000 - Rs 12,00,000. But one should not consider buying an Insurance plan as their investment. An Insurance plan is just to take care of the dependents and shouldn't be considered as return bearing investment. Do not forget to consider the Riders along with the Base Plan.
Some good suggested Term Policies:
3. Maintaining Health Insurance:
During these days, people are understanding the importance of having Health Insurance. The medical inflation rates in India are increasing day by day and it is becoming difficult to meet the medical expense for common people. Hence, every person / family should have health insurance. This will provide the risk coverage during emergency medical situations. Emergency medical expenses may result in severe financial distress. You may have to dip into your savings or sell your assets to meet such expenses. When you buy a health plan, you are assured of financial stability during a medical emergencies. Insurance providers offering different types of plans to maximize coverage and benefits. Some of the coverage includes pre and post-hospitalization expenses, hospitalization costs, day care processes, and domiciliary treatment. Here are some good Family Health Insurance policies:
4. Maintaining Financial Goals:
Your personal financial planning is incomplete unless you include your financial goals. Financial goals may have short-term as well a long-term based on the type of the financial target. Children's higher education, marriages, retirement needs are some of long-term financial goals. On the other hand, buying a vehicle / furniture, taking vacation etc. comes under short-term financial goals. If you have already set financial goals, this is the right time to review your existing Financial Goals and re-balance them with the upcoming challenges. For eg. you may have spouse, children or wishing a new Home or Vehicle. According to these new additions in your wish list, you need to add your financial goals accordingly. You may also get a promotion or a job change where there will be significant salary hikes. In this case, your allocation of funds should also be appropriate to maintain the current life style in future. Mutual funds are my top priority in choosing the right investment to your Financial goals. Be cautious about setting too many or unrealistic financial goals. Otherwise, you may not be able to accomplish any of them. maintain a checklist to keep track of how you are doing throughout the year, so that you can make any necessary modifications. Consider meeting with your financial adviser to review the goals and objectives that you have established.Some of my suggested Mutual funds to meet your financial goals in 2021:
We hope this new year will brings us new opportunities and usher this new year with new resolutions and challenges. Wishing you a Happy and Bright New Year - 2021