Planning for future emergencies? Four necessary financial tips for you
New Delhi: An emergency fund helps you financially cope with a medical scare, unavoidable household repairs, sudden loss of job or salary, pay cut, or something that impacts the community like wars, social unrest or a pandemic like the current one.
The Covid-19 pandemic has forced us to review our personal finances and prepare for future uncertainties.
Life is unpredictable and you never know when a financial crisis may knock on your door. Thus, at each stage of professional life, it is important to set up an emergency/provident fund that will serve as a cushion on which you can lean on in the event of a financial crisis. This fund will help you with your fixed expenses such as rent, electricity bill, etc. in case of emergency.
Create a budget
Even though it sounds tedious and boring, start by creating a budget. Usually, the excitement of making money and getting paychecks leads to unnecessary spending, and people often engage in impulse spending. In order to ensure that you are not spending money on unnecessary things, it is best to first create a budget and set your priorities.
Note that this budget will help you know your spending habits and aspirations. You can mark short financial goals and establish a budget in order to achieve these goals. If you stick to the budget, you can manage your cash flow significantly because you will know where you are putting your money. A budget also helps you track all recurring expenses as well as infrequent expenses.
Life and health cover
Fear around Covid-19 has pushed people to take out life and health insurance. Having a health insurance policy is a basic requirement, but understanding what the right coverage is is just as important. Although there is no ideal sum insured for a health insurance policy for an individual, most personal finance experts recommend a minimum health cover of Rs 5 lakh.
The life insurance coverage you choose must be adequate to help your family maintain the standard of living you would always have provided. The rule of thumb is to have a sum assured which should be at least 20 times the annual income.
Less debt, living on a budget
High-interest debt, like credit cards or personal loans, hurts your financial health. If you are unable to pay on time, the interest rate may further increase the amount of debt. And even if you use a credit card, spend as much as you can afford by the next month. Living on a budget helps in the long run. It makes you aware of your basic needs and can help you through difficult times.
A financial plan is based on your financial goals, which are assumptions based on your current situation. Now, with time and situation, priorities in life change. These are the times when you should review your financial plan and make any necessary adjustments. This will ensure that you are not financially stressed but at the same time able to achieve your life goals in a timely manner.