Tough times in life are like tides in the sea waves; they come, and they go. One needs to plan properly for these times to sustain at ease. There are three basic steps involved in successful financial planning: control the expenses, plan, and maintain a fallback strategy. In this blog, we will discuss various elements of financial planning, such as creating a monthly income plan and understanding different fixed income options.

What exactly is a financial stability net?

A financial stability net is a blanket of savings and investment strategies or measures taken by an individual to ensure financial dependability in tough times, like economic slowdown, recession, or personal tragedy. Although difficult times will impact your physical and mental peace, these buffers will ensure that you have a structured financial arrangement that can support you during such times. Here are a few things that you can do to make sure you have an effective monthly income plan for adverse times.

1. Maintain an emergency fund apart from your regular bank account

When building a financial stability net, it is advisable to maintain a dedicated emergency fund for unforeseen situations such as medical expenses, job loss, or urgent repairs.

Financial planners often suggest maintaining funds sufficient to cover four to six months of essential expenses. This may include household expenses, medical costs, or other unexpected financial requirements.

While creating a financial stability net, the first and foremost thing to work on is a dedicated emergency fund for adverse situations. Most of the time, people don't take abrupt emergencies like healthcare hazards, accidents, job loss, and others into account while doing financial planning. Although you can have medical insurance that is dedicated specifically to any health conditions, it is always good to access to quick funds in hand for adverse times.

The next big question is how much money you need to accumulate in your emergency fund. According to experts and risk analysts, your emergency monthly income plan needs to have enough funds to sustain your expenses for four to six months. Make sure to save enough money to cover anything from unplanned trips, hospital bills, home repair or renovation, and so on.

The next problem that you might face is where to save your emergency fund? It is advisable to keep this fund separate from regular spending accounts to ensure disciplined usage.

Having an emergency fund can save you from the high interest rates of credit cards or an unsecured loan.

2. Term life insurance can be a financial buddy for your family

Term life insurance is often considered in financial planning to provide financial support to dependents (spouse, parents, children) in the event of unforeseen circumstances.

It may help address outstanding liabilities or future expenses, depending on the coverage selected. The coverage amount should be assessed based on annual expenses, liabilities, and long-term financial commitments.

The biggest advantage of term insurance is the fairly affordable premium amount. Now, the question is, how much amount do you need in your term insurance?

There is a thumb rule to calculate the amount of the term life insurance. It goes like this:

• Calculate your annual expenses, including monthly expenditure, spending on a child’s education, and so on.
• Calculate EMIs or debt amount that you need to settle during the term plan.
• Add all of the expenses mentioned above and multiply it to “X” (can be 10, 15 or 20- depending on inflation and age); you will get a rough estimation of your term insurance amount.

3. Plan for income disruption due to illness or injury

In financial terms, the biggest asset for an individual is the ability to earn. Without your monthly salary, it is just a matter of time that you start facing financial problems. Various things are dependent on your monthly salary, and in the absence of it, you need an emergency fund for backup. Now, suppose you don't have one! In this situation, long-term disability insurance can come to your rescue.

Long-term disability insurance is an aspect of financial planning that is sometimes overlooked. This may be due to confusion between short-term and long-term disability coverage, which serve different purposes.

Long-term disability insurance may provide partial income replacement, subject to policy terms and conditions, in the event of an illness or injury that prevents an individual from working for an extended period (often beyond 90 days).

Some employers offer long-term disability coverage as part of employee benefits. Individuals may also explore such coverage independently through authorised insurance providers, based on their financial needs and risk assessment.

4. Minimise debts during periods of continuous income

As we mentioned earlier, there are good times, and there are bad times. While you need to hold your ground in the bad times, make sure to fortify your financial stature in the good times. Try to eliminate your debts when things are going your way. Minimise unnecessary expenditure, and try to pay off as much as possible so that you can avoid penalties due to non-payment of EMIs.

5. Plan early for retirement

In general, people don’t plan for their retirements in their 30s or 40s. Only in the 50s or late 40s do they start thinking about it. And, by then, it’s already too late. When it comes to saving or investing for retirement, the sooner you start, the better it is.

Various financial instruments can be considered based on risk appetite and monthly income requirements.

Advancements in healthcare have contributed to increased life expectancy. As a result, individuals may need to plan for a retirement period that could extend over two or three decades. During this phase, regular income may be required to manage household expenses, healthcare costs, and other financial commitments.

Some employers provide retirement-related benefits to support long-term planning. Individuals may also consider investing in a fixed deposit (FD) as part of their retirement strategy, depending on their financial goals.

Shriram Finance offers fixed deposits with tenures ranging from 12 to 60 months. Interest rates are offered up to 8.15%* p.a., inclusive of an additional interest rate of 0.50%* p.a. for senior citizens and 0.05%* p.a. for women depositors.

Summary

Implementing structured financial strategies such as maintaining an emergency fund, managing liabilities, and planning for long-term goals can strengthen overall financial preparedness.

Consistent allocation towards savings and investment options may help individuals build financial resilience over time.