Mahesh Pai lists down important events in a person’s life and how to plan one’s finances prudently
Financial planning is an important task in the management of your finances. It is not only limited to investment planning or debt management. The correct financial planning means considering major life events while planning the other aspects like tax planning etc. Although it is absolutely true that some things happen unexpectedly, but we can anticipate other events in order to prepare. So how do you prepare for the expected and unexpected event? And what are the most common life events that you should be prepared for? Here are some of the major events in an individual’s life which require financial planning
Your wedding
Marriage is a beautiful thing and one of the biggest life changing events. Marriages not just mean the welcoming of a life partner but also welcoming the financial plans and problems of your partner. Many couples experience taking complicated decisions together, the finances can get complicated if both the partners are not on the same page related to the expenses. The couple needs to sit and discuss a common financial plan for both so that the personal financial status is not disturbed as well as the finances of the house are maintained well.
Purchasing a home for you and your family
Nothing is better than purchasing your own home and when you get a great deal for the house, it almost becomes irresistible. However, one must not compromise on other financial goals just to fulfil this desire. It is okay to live on rent for a few years while you create a corpus to buy your dream home. Many people try to buy a home due to pressure from the society which then affects their finances very badly. Before you buy a home, you need to make sure whether you have ticked the checklist of protecting your family financially and whether you are comfortable to repay the loan, if any. Buy a home when you are ready and not to please society.
If you are about to have a baby
The feeling of becoming a parent can be life changing but with the baby comes more and more responsibilities. The financial responsibilities of the baby increases as the baby starts growing up. From doctor’s appointments to prenatal vitamins to a likely hospital stay, you need to plan ahead for this major expense, if possible. But if near future then you must definitely be sure of having good health coverage. Insurance isn’t necessarily cheap, but paying your premiums regularly can drastically reduce the amount you pay out-of-pocket when you give birth.
Children’s education
Education costs in India are increasing even faster than inflation! Rather than making investments based on looking at advertisements, it is crucial that one does a proper goal based planning. From primary to secondary to higher education, parents are increasingly finding it difficult to meet the growing fee structure and other costs associated with education. Thankfully, education loans come to their rescue for parents whose children want to pursue higher education but are short of funds. However, you should depend on education loans only to bridge the gap between your savings and the actual requirement. So, if your children are still small and have a few years before funds will be needed for them then it is always better to start planning early. Estimate the cost of education and find out how much you will need to invest monthly to reach that estimated goal. For better management of funds, create separate portfolio for your child’s needs; and remember not to touch the child investment portfolio for any need other than what it has been created for.
Children’s marriage
Nowadays, weddings have become very fancy and include extravagant ceremonies before and after the event. So if you are looking at an average wedding cost of around `10 lakhs today then you would be looking at a bare minimum of `50 lakhs in 15 years from now. That obviously means that you need to make your investments work really hard for you. But don’t be carried away by society or follow the rest blindly, as each one has a different and unique financial background. So focus on your budget. It is okay to have a lavish marriage but only if it is within your budget.
Retirement
It is the most important point of anyone’s life. You should be planning well enough from your early days of working so that you can gain enough money to lead a happy and merrier old age. Planning for retirement is not as complicated as some might think. But it is still pretty difficult to do if you have a full-time job and not much knowledge about all the products available. It is important to create the perfect roadmap to retirement by identifying the right investment options based on your risk tolerance and investment goals. Compare where you are and where you wish to be.
Illness or Death of a loved one
Another life event you need to plan for is an unexpected illness or death of a loved one. Even though we all hope to be healthy and strong for a long time, the fact is that injuries and illnesses do strike. You need to prepare yourself financially for the possible struggles in case that happens. No matter what, if you have a spouse or partner and you share the financial burdens of the household, you need life insurance especially if you have debts. Life insurance is key to protecting your assets. It ensures that if you die, your partner will be able to continue to pay the bills that your income normally would cover.
A will and estate plan or a trust
An estate plan is another key aspect and too many people do not have this in place. This could put our loved ones in financial trouble. Take some time to go through your finances and make a legal will which ensures that the right person gains access to your financial accounts when you die. It helps set aside money to care for your children. If you want your assets and your loved ones protected when you are no longer able to do it, you will need an estate plan. It is also an ongoing process and not a one-time event. You should review and update the plan as your family and financial circumstances change over time.
Be sure to create a plan for these potentially life changing events!
The best advice right now is to plan for what you can and be prepared for the things that are beyond your control. Get help of a professional especially if you have income from more than one stream. There might be some chances that you may miss out some of the details from your finances.
There are various events that occur in an individual’s life which can imbalance the whole financial status of the person, but effective planning can reduce the risk of a financial collapse
