Thursday, April 17, 2014

A Financial Health checkup Everyone


To get anywhere, you need a plan and the same goes for your financial future. Unfortunately. a financial plan appears, to most of us, like a visit to the dentist – something to postpone until you wake up screaming in the middle of the night.
So, here I came up with a financial plan that’s more like a visit to your favorite cafe. It involves forming simple habits and takes less than an hour to start implementing.

Investing, tax planning
1.    Maximize your Employee Provident Fund (EPF) contribution. If your total contribution (including your employer’s) to EPF is less than 1 lakh, save the difference in a Public Provident Fund (PPF) account. Your tax planning is done and so is your allocation to debt
2.    Invest 30% of your take home salary in diversified equity mutual funds. Never invest directly in stocks. (I'll be writing more about investing in mutual funds in my next blog).
3.    Got your annual bonus? Invest 50% of it in a 5 year auto-renewing FD. This is your emergency fund.
4.    Invest the remaining bonus in yourself – take a course, travel, do fun stuff.
5.    If you have a home loan, split the bonus 3 ways – one third to prepay the loan.

Time spent: One can talk to HR of the organisation for increasing EPF contribution, fill up a form: 10 minutes
Create an FD through net banking: 5 minutes

Insurance
1.    Buy a 40 year term life insurance plan at 25, then a 30 year plan at 35 and a 20 year plan at 45. Every time make sure the total sum insured is 30x your then salary.
2.    Buy health insurance for every member of your family. Even if you’re covered by your employer.
3.    Buy insurance for your car, your house and its contents.
4.    Renew your insurance every year 1 month in advance.
Please note that I said “buy” not invest. Insurance is not an investment. So NEVER merge your investment with 

Time spent: 45 minutes each year for the 3 insurance renewals, an extra 15 minutes every 10 years for life insurance

Bonus tips
1.    Maintain a single no frills bank account and a single no frills credit card.
2.    Set all your bills (electricity, phone etc) to auto-debit to your credit card every month.
3.    Pay off your credit card every month – in full. Set it to auto-debit your bank account every month.
4.    Contribute to charity – your time is better but some money will do as well.
Time Spent: 60 minutes to set up auto-debits

Loans
1.    Only ever take a loan to buy a home. Never more than 75% and never longer than 15 years. Pay it off within 7 years. Yes, it’s possible.


Congratulations! You've just set yourself up for a comfortable financial future. I'll be writing in detail regarding other options available for investment in my next blog.