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American author Hervey Allen once said “The only time you really live fully is from thirty to sixty. The youth – are slaves to dreams, the old – servants of regrets. Only the middle aged have all their five senses in the keeping of their wit”
Well, we need all the wits we can to get through the phase. Unlike the 20’s, a responsibility doesn’t seem real until we hit the 30’s. Marriage, kid /s, Home loan, Car loan and many other things suddenly feel like a big mountain that we have to cross and cannot have an escape route.
Break up of goals: Short-Mid-Long –
Financial planning is always goal oriented. This might sound a bit obvious that one must have short (less than five years), middle (7-10 years) and long term goals (20 years plus). But, it’s the most important step. For instance, as a short-term goal, you may need to plan for the kid’s primary school fees, which could be even as high as Rs 80,000 a year, Or more. Mid-terms goals could be a car (may be a second one), a family vacation abroad, kids’ higher education; long-term goals could mean buying a bigger house, and retirement needs.
As a rule, 10 % of the post-tax income of those starting their career at around age 25 can be the starting point. Over time, as the income increases, up to 15 % can give you a good head start and a buffer. As you grow older, and your income rises and financial liabilities add up, make sure you are saving enough towards your goals. In middle age, saving at least 35 % of your post-tax income should be the benchmark.
Emergencies arrive unannounced and without warning. The best strategy is to be prepared for them. So it is sensible to have a emergency fund. Have at least 3 to 6 months’ expenses kept aside as an emergency fund. This includes monthly living expenses, lifestyle expenses as well as EMIs for your loans. This applies to both, single-income and double-income families. There could be a setback to one’s earning capacity due to a temporary disability or being unemployed for a few months. A medical emergency may crop up at a time when the settlement claim is taking time, or the ailment itself may have a waiting period. In such cases, one may have to arrange for funds to combat the situation. This fund then comes handy.
Medical cover for each member of the family is a must. You don’t want sickness to eat your savings. The medical cover which your employer offers covers your spouse and kids. It’s also beneficial to buy a separate family floater policy as well. An insurance coverage between 3-5 lakh is suggested. One can also look into buying a serious disease disability policy, an accidental death-cum-disability insurance for self and spouse.
Life insurance coverage should be equal to 12-15 times your annual expenses or 8-10 times your annual income. . The actual requirement may, however, depend on one’s age, goals to be achieved, financial dependents, accumulated wealth, etc.
Remember to take into account the debts (maybe a home loan) you owe while deciding for a term cover. That way, your family won’t be asked to leave the home if you aren’t around. Also ensure that both partners at least make a paper will, to avoid unnecessary hassles.
Off course, you want to give your child the best, but that does not mean you ignore your own retirement. Expecting your kids to take care of you and the spouse financially when you’ll grow old isn’t right in this day and age. They will have their own financial worries to attend to when they grow up. If you truly want the best for your kids, ensure that you plan for retirement well in advance. Most financial planners suggest a retirement corpus target which is about 20 times of one’s annual income. Some feel that 30 times can be a better figure as it will take care of inflation. It gives you a reason to work backwards and estimate how much you need to save from today till you retire.
In conclusion, one rule that works during finance planning is to “Pay yourself first”. Which means that from your income, first take care of saving and then the expense. Income minus savings equals expense!!!!!!!!!!!!!!!
About the author:
Padmaja Acharya – From the ancient language of Sanskrit comes my name ‘Padmaja’, derived from Padma (meaning lotus) and Ja (meaning to take birth from). A woman as created by the divine. An Engineer and MBA by virtue of education. A dance choreographer, teacher by virtue of passion. A soft skill trainer and educator by profession. An author and speaker as guided by my calling. This is what encompasses me.
(The author is a guest blogger at Her Second Innings. The opinions expressed are those of the author.)
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