What is a wealth creator: Even though Ravi and Vikas are earning well, their financial balance is not perfect, most of the people in our country are still away from health insurance and term insurance.
Ravi is 28 years old and is not married yet, while Vikas is married and has two children, Vikas is around 34 years old. Both are working but both have made the same mistake. Both have not yet taken any decision about emergency fund, term insurance, health insurance or future wealth. If you have not yet taken these four steps to make your finances and future secure, then be alert.
Actually, taking the right steps for financial and future security creates a strong foundation, which is important for everyone. In today’s era, term insurance, health insurance and emergency fund are important for everyone. Therefore, as soon as you start a job, you should first take emergency fund, term insurance and health insurance.
Even though Ravi and Vikas are earning well, their financial balance is not perfect. Most people in our country are still away from health insurance and term insurance. Whereas this is the first step in financial security and is necessary for everyone. Let’s know about those 4 steps which will protect you in every way.
1. Emergency Fund
In this fast-paced life, expenses can come up at any time, which you may have never thought of. Uncertainties in life like job loss, medical emergency, or vehicle/home repairs can bring unexpected expenses. Emergency fund keeps your savings and investments safe in these situations.
In India, where social security schemes are limited, this fund is important for financial stability.
The emergency fund should cover your entire expenses for at least 6 months, which includes house rent, bills, groceries and all types of EMIs. There should be a savings account for the emergency fund, in which you keep putting a little money every month. For example, if someone’s household expenses are Rs 40,000 per month, then they should first keep about Rs 2.50 lakh in a separate account as an emergency fund. As the salary and expenses increase, keep increasing the emergency fund as well. The most important thing is to use this fund only in emergencies, do not touch it for regular expenses (such as holidays, gadgets).
2. Term Insurance
After emergency fund, term insurance is the most important thing for everyone. It ensures financial security of the family, especially if you are the main breadwinner of the family. It gives a big cover at a low premium. Now the question arises that how much term plan should be taken. There is a simple formula for this, take a cover of 10-15 times your annual income. That is, if your annual package is Rs 10 lakh, then you should take a term plan of Rs 1 crore. The younger you take term insurance, the lesser will be the premium. If your income is Rs 5 lakh annually, then take term insurance of 50-75 lakh.
In India, where life insurance penetration is still low (according to LIC, only 3-4% of the population has adequate cover), this step is crucial. Everyone should take a term insurance plan at least till the age of 60. You can add a critical illness or accidental death rider to the term plan. If a 30-year-old youth takes a term plan of Rs 1 crore, the premium will be around Rs 10,000. Pay the premium annually, this will give a discount.
3. Health Insurance
Medical expenses are increasing rapidly in India, it is increasing by about 10-15% annually. If your question is why is health insurance necessary? The simplest example of this is that if you do not have any health insurance, then a serious illness can wipe out your entire savings. Whereas a health insurance at a nominal premium covers all kinds of hospital bills, surgery, and other medical expenses, which maintains your financial stability.
How much health insurance is necessary?
Individual health insurance should be taken for at least Rs 5 lakh, while family floater health insurance should be of Rs 10-20 lakh, which includes husband-wife and children. After health insurance, you can get an additional super top-up of Rs 50 lakh to Rs 1 crore, which is available at a nominal premium. For a family
of 4 people (30-35 years old parents, 2 children) a family floater plan of Rs 10 lakh is available at an annual premium of Rs 20 to 25 thousand.
4. Financial Goal (Wealth Target)
After you have taken the above three decisions, your focus should be on creating wealth, because you will need to raise money for goals like your marriage, car, house, children’s education, retirement. Inflation in India is around 5-7% per annum. Now you have to invest money in such places where you get less risk and more return, along with some funds should also be towards safe investment, for this you can invest in PPF, NPS.
While the best option for higher returns is Mutual Funds, where you can do SIP with the help of a financial advisor. Create a portfolio that is diversified. Maintain a balance between equity, debt, and gold. Uncontrolled debt (such as credit card, personal loan) can limit your financial freedom, stay away from them.
To create wealth, you can follow the popular 50-30-20 rule.
50% income: Necessities (rent, bills, EMIs).
30% income: Lifestyle (entertainment, shopping).
20% income: Savings and investments.
