These words sum up the essence of life- it being ephemeral and uncertain, replete with crests and troughs. In fact, it is this very uncertainty that lends life a spritely spark! Who would like to live a life that is predetermined, in other words, boring? At the same time, it is important to embrace the uncertainties, and for this you must be prepared to face unexpected events head-on with proper financial planning.
Financial preparedness for key life events, both planned and unplanned, is crucial to living a stress-free and happy life. Here are 7 life events to be financially prepared for.
1)Starting a Career
Earning your first pay check at your first job can be an exhilarating experience. But remember that the exhilaration soon dies down when you realise that no money is enough money. First and foremost, meet a financial advisor and discuss your short term and long term financial goals for an investment plan. Consider any student loans and try to repay them at the earliest, consider pre-paying them off. Create a monthly operating budget and follow it. Build an emergency fund that accumulates over time and gives you a safety net. Understand the benefits that your employer provides with inclusions and exclusions, such as health cover. Study the tax law and its impact on your pay, along with tax-saving measures.
Tying the knot is a joyful event, but expensive at that. Especially Indian weddings tend to be over-the-top with many guests and elaborate ceremonies. Wedding expenses can quickly drain your finances, leaving you with hardly anything to base your new life on. If marriage is on your mind, make sure you agree on short term and long term financial goals for the two of you. Develop a monthly budget and stick to it. Put together a combined statement of net worth and set aside time to review it periodically. Decide which of your accounts and expenses will be separate and which combined. Review your health insurance, term insurance, life insurance policies to include your spouse as nominee. Revisit the tax implications of a joint income, and consider investing for fresh life goals.
3)Having a Baby
Childcare is expensive in today’s world, right from pre-natal care to delivery, to raising your child. Moreover it is almost a lifetime of investment, and you need to give careful consideration to various milestones- early education, healthcare, daily needs, college education, marriage and so on. As much as it is exciting, being prepared and planning for your child’s finances beforehand is a serious responsibility, especially since it may involve one parent reconsidering work commitments to care for the child. Set education goals early on and review education savings schemes. Revisit your financial kitty and look for employer benefits that can help you, such as day-care compensation. Review your health insurance, life insurance and other plans to include the child.
4)Buying a Home
Home purchase is perhaps the single biggest investment we do for ourselves in our lifetime. Your first step in the process should be to check your affordability, both in terms of the down payment and monthly instalments. Review home loan rates from various institutions and estimate your principal and interest payments. Understand real-estate tax structures, which may vary. Another trend that is catching up is home insurance, see whether you want to invest additionally in it. You may have to make some lifestyle changes if you decide to take on a home loan.
5)Facing a Health Concern
Facing a chronic illness is an unplanned expensive incident, and one that must be dealt in detail. Ask yourself the hard questions- Can you afford expensive treatment and to what extent? Will you return to the workforce and earn soon? Do you need assisted care and what are its costs? Evaluate investing in a long-term care insurance plan early-on, depending on your financial leeway.
6)Losing a Job
Today’s economy is highly volatile and losing a job is not unheard of. Take regular stock of your liquid investments, make sure you have sufficient accessible funds. Ideally, you should maintain a contingency fund in advance to face such an eventuality.
Retirement is a jolt for most people for two reasons- a lot of empty time and a sudden drying up of income. Invest to ensure a steady income stream for retirement to allow you to live the same lifestyle. Invest in a pension scheme or retirement plan, make sure to consider the time value of money for calculating income gains decades from now.
Financial wellbeing is a precursor to physical and emotional well-being. Worry about finances is the last thing you want—the mounting stress is sure to play havoc with your life. As a general rule, it is advisable to keep three to six months’ worth of living expenses as cash reserves for emergencies. Be Through proper financial planning you can be ready for important life events! Explore your options for getting credit if needed. MoneyTap, which offers a personal line of credit of up to Rs. 5 lakhs instantly on your phone, can be your financial cushion for such times.
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