We have all played the Five Things game some time in our lives: for example
What are the five things you will save if your house collapses? (That's easy: Dog, Diary, hard-disk, DVD Collection and favorite draw string pants!)
Who are the five people you will say goodbye to if you only had a minute? (That's always a tough one!)
And so on. Now, continuing the game – what if we were to ask you about the five things you absolutely must have for survival at any given point in your adult life? No, the answer is not a Swiss army knife! Survival unfortunately in today's world is all about finance. So here are five things that you need to have to ensure financial survival for you and your family.
1. Emergency cash
Emergencies could be anything - from serious medical conditions to a sudden setback on the job front. Emergency cash is a must-have in your portfolio. How much one should set aside for this really depends on each one's income and lifestyle. But investment advisor Ajay Bagga suggests a broad thumb rule. He says, "Around six times the monthly expenditure can be kept in a liquid asset like a bank deposit, as an emergency pool."
2. Medical insurance and life insurance
The former for your life and the latter for your dependants. You need to have a medical insurance policy in place, not just because it gives you a tax break, but because it is the best way to fund your medical expenses. Taking medical insurance early on in life is an advantage because you have the benefit of good health on your side.
Most insurance companies cover pre-existing illnesses only if you've had a policy with them, for more than five years. Also make sure you renew your policy on time.
Branch manager of National Insurance, Hema Shetty says , "In case a policy is not renewed in time or if there is any gap while renewing it, the policy will be considered as a fresh policy and whatever exclusions apply in the first year of the policy will be applicable."
You also need enough life insurance so that your financial dependents could invest the money and live modestly on the proceeds.
3. Child's education fund
Start planning early for your child's future. While you may not know exactly how much you ought to save, you could look at setting aside small amounts every year. Here you need to ensure a good asset spread, which provides adequate safety and growth.
Certified Financial Planner, B Srinivasan advices, "For a medium risk person, a spread of 40:60 or 60:40 in debt to equity is acceptable. At the same time, one must maintain a good mix of liquidity and flexibility. It is important to keep away from instruments whose returns will be subject to tax incidence, on an accrual basis." Simply put, in child plans, the income should be taxed only on maturity so that the tax incidence is in your child's hands. Since your child will not yet be earning an income by then, he will not have to pay tax either.
4. Retirement Fund
This is the most ignored in all financial plans. Nuclear families are in and so are longer lifespans. Inflation and escalating medical costs will also be always around. Therefore, you need to build up a corpus that will not only take care of routine expenses but also provide for extra healthcare costs that you may incur. You need to have a corpus of funds, which will give you close to 100 per cent of the salary you enjoyed while working, to preserve the lifestyle you are used to.
The trick according to Certified Financial Planner Kartik Jhaveri, is to devise a professionally counselled and well-managed asset allocation portfolio. Typically, for a 25 to 45-year age band, the accent should be on equity investment. The amount to be invested in equity should necessarily be determined by the risk appetite of the individual.
5. A will
If you die without making a Will, your family will have to follow certain ‘laws of succession’ in deciding how to split your assets. It is a misconception to believe that all the estate is automatically passed on to the spouse. Children and relatives can also stake claim to the properties. Laws of inheritance and succession are diverse and complicated. Making a Will is sensible because it leaves you to decide how your wealth is used. But unfortunately, most Indians simply forget to make a Will.
That completes it. The 5 must haves to ensure survival in today’s heartless world. Additionally, if you have a Swiss army knife, it wont hurt either!
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