Secure Your Future: Live a Financial Stress Free Life

                    

Welcome! You are here which is already a good sign that you are thinking about your future and most importantly you want to do something about it. In this difficult time when we see the challenges, people face in their day to day life and when we see our future, how bleak it is at least economically. If we don't do anything today then our tomorrow is for sure a ruined one. We mostly the middle class, it does not matter lower, middle or higher category of the middle class are the most vulnerable ones to any kind of financial situation. We dream big but can't act on that to make it a reality. People say dream High but nobody says what to do after that to make the dream a reality. Making our dream a reality is not a big task though. The difficult part of the whole task is to start acting on it, start walking on the road which will take us to our dream. So let's prepare a simple plan for how we can achieve our dreams in a simple and timely manner. To be fair, we need to be realistic about our dreams as well. We should not dream about something which we can't even start working in to achieve it. So dream big but make sure you have space or resources to afford or accommodate that. But most of the time, we dream right but can't achieve that because we just dream and forget that once we get engaged in our day to day busy life. But if we spend a minimal amount of our time on planning our dream and if we visualize how we will achieve that, if we will spend a little amount of the time on execution of the plan to achieve the dream, then it's an easy task and you will see how simple the process is. So without any delay let's jump into the simple yet successful plan of achieving our financial dream, financial freedom. 

 

Let's jump right into it. Sit down calmly and write down all those things you want to do or achieve in your future as far as you can think of. Then divide those into  2 categories, want and need. So to make it more clear, for example, funds needed for your retirement, marriage, children's education, self-higher study are in the bucket of need but foreign vacation, latest iPhone,  etc should be part of the want buckets. So the rule says, even if it's needed, we should sacrifice our short term wants to fulfill our long term needs. But it's very difficult to get rid of that urge to have the latest gadget or a fancy meal in that high-end luxury restaurant, so I will say you have to bribe yourself a little bit of what you want to come to an agreement to make most of the things what you need. So lets plan for both. More of this and less of that. 

 

                 Now as you have made two buckets, "Want" and "Need". Now time to sort the things in every bucket based on their priority and time frame by when you want to achieve. So this is what I believe but again its personal completely personal choice to segregate the fund ratio how you want to out into need and want bucket but you have to be very careful or else you will get carried away and will put much of your fund in the want bucket instead of need bucket, so I follow this rule.   

1. Income Source: 
1. Put down all your income source in one side and takeout the sum. Now you know how much you have every month  which can be put on expenses or investments. 
2. Budgeting Expenses:  
1. Make a monthly budget for your basic necessities like house rent, groceries, transportation, communications, utilities, etc those are recurring and you cant avoid. 
2. Add another list if items in your budget as discretionary expenses which you want to do every month like going movies, eating outside, starbuck spends, etc but for the time being put 0 for these. 
3. Budgeting Insurance: Take that step and secure your hard-earned money from an unexpected turn of events and secure your dependents who are dependent on you 
• Health Insurance: This is the first and very important step, take up an insurance which can protect you in case of any medical expenses or emergencies as you know medical expenses are becoming exponentially expensive day by day. God forbid but if it happens, we should not stop our other plans and divert all our hard-earned funds. So better to be secured for this. 
• Critical Illness: If possible take as a rider on health insurance or else take a separate plan but better to be secured by a good amount for critical illness as well 
• Life Insurance: Don't get fooled by the commission earning agents and start taking a commitment with huge premiums unnecessary. Go with a good term insurance plan with a nominal premium but with a cover of minimum 10 times of your annual gross salary. 
4. Budgeting Future plans: 
• Now as we read earlier, you have categorized your plans to want and need buckets and after the Budgeted expenses and fund for insurance, the remaining surplus amount should be distributed into the future plans. As I did mention, let's plan 80% of the remaining surplus into Need bucket and the 20% to the want bucket. This amount should increase year over year based on your income increment, a similar percentage should increase in this fund as well. 
• Before diverting and distributing funds into different future want and need a plan, we will take one more step and which is a critical step in our plan, is the emergency fund which will help us sail through in case of any unforeseen circumstances appear for a short term. So let's keep aside a corpus for an emergency which will make us survive without breaking any other fund for at least 6 months. 
5. Saving Income tax: 
• Either you are salaried or having self-business, irrespective if income source, we do pay tax and govt provides a provision to save tax, so we should work on that and take that benefits. But just for the sake of saving tax, we should not put our money in any unyielding unnecessary insurance policies where we would be stuck for long. Rather we have many other valuable and good options for tax savings 
• VPF: If you are a salaried employee, it's the best way to save tax and create your debt components of the portfolio by increasing the amount as voluntarily in the provident fund. This is with the best rate of return in the debt category for long term and also it does create a corpus for your retirement too. 
• PPF: Public Provident fund, it's almost like PF but with little less rate of return 
• If you have kids, especially girls, then govt provided few schemes like Sukanya Samridhi, etc are there 
• ELSS MF: Out of 150000 tax savings cap in 80C, you can put few amounts in ELSS(Equity Linked Savings Scheme) mutual funds through monthly SIPs as well, there are many good funds having exposure to low to moderate risk category large caps. This will yield god return and you can align these investments to your long term goals as well. 

 

Now lets deep dive and see how we can put our funds and where for the planned goals. If I say so, most of your want goals will be short term basis. Okay before that lets understand what are the time frames, short term should be something in less than 3 years of time horizon, medium terms between 3 to 5-7 years and long term is beyond that. 

 

• Short-term: Should go into liquid assets like Recurring deposits, Fixed deposits or liquid debt funds 
• Medium-term: Mostly should be into safe and secure funds or else very low risk debt funds. We can go for even Mutual funds SIPs in large cap funds which are in low to moderate risk category. 
• Long term: Definitely we should put into large cap or hybrid or balanced equity mutual fund through monthly SIPs 

 

So let's prioritize the goals and using goal calculator considering the time horizon, find the monthly fund needed for each goal and start investing the amount. After aligning with your goals, if you still have surplus amounts, then you can put that in your budgeted expenses in the list which you have added but zero amount.  

 

You can have a portfolio aligned with your goals, which will let you leave stress free as you have planned every aspect. 

 

Common day to day financial hacks 

• Create RD for annual mandatory expenses like premiums, etc so that you will not be worried to gather the fund at once when the time comes. 
• If you can use a credit card with responsibility, then you will be able to save much in day to day expenses as many sites provide cashback also, by accumulating reward points you can use that for discretionary expenses like many cards has buy one get one offer in movies and discount in other restaurants. But again I would like to stress on the word responsibly or else you will get carried away and end up having more unnecessary expenses, 

    

So to summarize, compounding is the key, to beat the inflation in long run and achieve the goal. Investing in low to moderate risk mutual funds of large cap category through systematic investment plan (SIP) with utmost discipline, patience and continuity is the only way to reach the destination. 

 

There are many goal calculation tools available in internet which can be used for detailed calculation.