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What is important in financial planning?


What has the pandemic taught us universally? 1. Things can change quickly. 2. Focus on your health.

During the pandemic, unprecedented incidents and income uncertainty have prompted people to secure their money wisely to avoid instability.

The insurance and investing landscape has changed. The growing middle class and young population, coupled with increased financial literacy, have placed emphasis on insurance, emergency funds, and investments as part of financial planning.

Financial planning helps manage money wisely, hedge risks, get tax breaks, and get rid of debt fast. For reliable financial planning, complete knowledge of your income, assets, debts, health, tax reduction strategy, and goals is required.

Understand emergency funds, investing and insurance in financial planning.

1. EMERGENCY FUNDS –

Setting up an emergency fund of at least 3-6 months of living expenses in the event of job loss or financial / health crisis has become imperative. The main differentiator is that emergency funds are liquid or easily accessible compared to investments or insurance. If there is a surplus, you can use it to insure or invest.
2. INSURANCE – Insurance protects you or your family from any type of uncertain loss such as life, property, business or health. Insurance companies receive regular premiums from their customers for a period of time and for their financial loss or reimburse expenses when claimed. Health insurance, term life insurance and critical illness insurance are the most important and beneficial insurance policies.

As premiums get more expensive as you get older, it’s best to purchase insurance as young as possible for you and your parents. Taxpayers can also enjoy tax benefits under Sections 80C and 80D for investments and medical insurance respectively. The sudden disappearance of an income-dependent or fatal illness can be a mental and financial burden. In these cases, if you have investments, you might have to use everything to get through. However, insurance will help you tolerate huge expenses with affordable premiums.

3. INVESTMENTS – Investments are made for the purpose of increasing wealth. For example, property, gold, stocks, mutual funds, term deposits, etc. Insurance companies have also developed products like ULIP (Unit Linked Insurance Policies) where a premium is divided between insurance and investment. Simply put, investing is all about building wealth, and insurance helps you secure wealth. Mutual funds and ELSS are popular investment options among new investors. ELSS (Equity-Linked Savings Scheme) is popular for the benefits of tax exemption and a lock-in period of at least 3 years.

The SIP (Systematic Investment Plan) allows periodic investments instead of a lump sum all at once. You can plan a SIP for ELSS and mutual funds if you want to start with affordable and regular investments. The best part is that ELSS and mutual funds come together and leave you with large funds in a long term investment. Of course, be aware of the risks before investing.

After COVID-19, insurance premiums climbed 15 to 40%. It’s never too late to purchase insurance or invest. It is safe to say that insurance is above the investment for many families. Before committing to any investments, it is important to ensure that they have adequate emergency funds and insurance policies to support them in times of crisis. This gives enough leeway to engage in short and long term investments with risks.

With growing interest in post-pandemic health insurance, companies are seizing the opportunity to partner with insurers and offer group health insurance to employees as it is by far the best factor in break while recruiting competitive talent.

The author, Sanchit Malik, is co-founder and CEO of Pazcare. Opinions expressed are personal

(Edited by : Anshul)

First publication: STI


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