Tough times in life are like tides in the sea waves; they come, and they go. However, a person mustn’t beat around the bush when tides are high. And to keep afloat in tough times, it is important to have a safety net. Financial emergencies are inevitable in life. One needs to plan properly for these times to sustain at ease. There are three basic steps involved in successful financial planning: control the expense, plan, and maintain a fallback strategy. In this blog, we will discuss various elements of financial planning, like the best investment plan for monthly income, guaranteed income plan, Non-cumulative interest rate, and so on. So, let’s dive in!
What exactly is a financial safety net?
The financial safety net is a blanket of savings and investment strategies or measures taken by an individual to ensure financial stability in tough times, like economic slowdown, recession, or personal tragedy. Although difficult times will impact your physical and mental peace, these safety nets will ensure that you remain stable on the economic front. Here are a few things that you can do to make sure you have a stable monthly income plan for adverse times.
1. Maintain an emergency fund apart from your saving account:
While creating a financial safety net, the first and foremost thing to work on is a dedicated savings account 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 for any health conditions, it is always good to have liquid money 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? Always, and let me reiterate it; always maintain a separate account from your other savings, and don’t touch it till you hit a roadblock. You will face difficult scenarios every now and then, where you will need liquid cash. Having an emergency fund can save you from heavy interest rates of credit cards, or an unsecured loan.
2. Term life insurance can be a financial buddy for your family:
In financial planning, it is always suggested to start planning for the worst scenario. And, there is nothing worse for a family than the sudden demise of the family’s breadwinner. Although nothing can fill the void created due to the unfortunate incident, a term life insurance will ensure the family’s financial stability in those tough times.
Term life insurance will ensure that your children and family remain firm and independent even if you are not there for them. It can be leveraged to pay off any debt, fund your child’s education, and can be a guaranteed income plan for your spouse and parents. The biggest advantage of term insurance is the fairly low 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 EMI’s or debt amount that you need to settle during the term plan.
- Add all of the expenses mentioned above and multiply it to 10; you will get a rough estimation of your term insurance amount.
3. Prepare a monthly income plan for your inability to work 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.
It is a safety net that is often overlooked. One of the most prominent reasons for the disdain is people’s confusion between long-term disability insurance and short-term disability insurance. However, these are two separate things. The long-term disability insurance ensures that you get some part of your salary (can pay up to 60%) in case of injuries that last more than 90 days.
Moreover, if you look at the odds, you have a higher probability of having a long-term injury under the age of 40 than the odds of sudden demise. And that’s what makes long-term disability insurance more important—often, the company that you work for offers long-term disability insurance. However, you can also get long-term disability insurance from any online or offline insurance service provider.
4. Minimise your debts in good times:
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. Be prepared for your 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. Early retirement planning is the best investment plan for monthly income in the future and acts as a stellar safety net.
With modern medicines and medical treatment, the average life expectancy of people has gone up. One may have to sustain for twenty or even thirty years in retirement. In those years, you will need cash to survive, and maintain the same lifestyle and expenses on medicines and other stuff. Several companies offer matching funds to get employees prepared for retirements. You can also invest in a fixed deposit (FD) as a strategy for retirement. Check out Shriram Finance Non-cumulative FD Scheme; one can earn interest rates of up to 9.20%* p.a. inclusive of the 0.50%* p.a. special interest benefit for senior citizens and 0.10%* p.a. interest benefit for women depositors.
If you consider all of the strategies mentioned above, it will give a big boost to your financial planning for rainy days. Although you will have to do a bit of cost-cutting on your day-to-day expenses, it will aid you substantially in the long run. Moreover, if you deduct a fixed amount for your tough times from the very start, you get the flexibility to either increase your spending or investment as your income increases with time.
To know more about financial planning, get funding for your business, or emergency monetary assistance, visit the Shriram Finance website today.