Hyderabad: The clarion call for 'Atmanirbhar Bharat' (Hindi for Self-reliant India) given by PM Narendra Modi has become quite popular. Being self-reliant is a good way to deal with unprecedented conditions at the present. Dangers can come from unforeseen corners in the future too.
So, the onus is on each of us to be financially 'Atmanirbhar'. How does one become self-reliant when it comes to their own finances? What are the steps that will prepare you financially to deal with the worst of times? In this article, we will look at 4 easy ways to become 'Atmanirbhar' when it comes to personal finance. Read on.
Build war-chest for emergencies
When disaster strikes, the time to prepare has already passed. Your salary/income may face a steep cut, making EMI payments and honouring financial liabilities a nightmare. Or worse, you can be given the pink-slip (sacked/terminated) during a downturn. This means zero income, unless one gets another job.
The more experienced and fatter their pay package, finding a job is that much more difficult. The only way to survive such a situation is dipping into your emergency corpus.
- A typical household has a fixed monthly expense, plus any EMIs/financial obligations.
- This can range from Rs 30,000 to more than a lakh of rupees for a middle-class family.
- The goal of an emergency corpus is to have 12 months of the monthly expenses + EMIs.
- Target the emergency corpus amount, say Rs 5-6 lakh.
- Next, save a small amount in your bank account each month, say Rs 3,000.
- Whenever you have some extra cash, put it in that emergency corpus so that your target is reached quicker.
The day a financial emergency strikes, you will be able to handle it comfortably. Even if bad times don't come, you will be able to sleep peacefully at night no matter what.
Protect yourself, family with medical insurance
You must have heard about the huge bills charged by private hospitals for treating patients. Government-run hospitals are much cheaper, but the quality of care & treatment is debatable as per anecdotal evidence.
This is why families make a beeline for private hospitals when somebody gets sick. For a 7-10 day treatment, getting bills of Rs 5 lakh to 10 lakh is quite common. Imagine paying such a large amount. Lack of funds could mean having to mortgage home jewellery! There is a cheaper way: medical/health insurance.
Upon payment of a small amount per year, one can take a much larger sum insured for their family with health insurance. You can get Rs 1 crore health insurance cover for a family of 3 (husband, wife aged 40 years) for about Rs 20,000 annual premium.
If your income is lower, you can start with a smaller sum insured like Rs 10-15 lakh also by paying a smaller premium annually. Some employees are covered by employer health insurance policy, but they don't cover aged parents etc. So, it is better to have a standalone health cover for the entire family.
Have a pension plan for possible early retirement
Everybody imagines retirement to be a time when they will put up their feet and have a lot of time to pursue their interests. Read newspapers/magazines all day, watch sports, do gardening, travel the world etc.
We don't mean to burst your bubble, but retirement also means no salary. That SMS from the bank on 30th of each month will not come. Unless you work in an organization which pays a guaranteed pension, reaching retirement age would surely mean working beyond 60 years of age.
Also, with the possibility of lay-offs these days, 'forced early retirement' is a real situation. If you invest in a private pension plan, you can remain self-reliant.
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Saving and investing Rs 2000 each month from 25 years of age can build a retirement corpus of Rs 46 lakh (10% return per year) by the time you reach 55 years. Just imagine the power of investing Rs 2000 in a pension plan monthly. Today, Rs 2000 is what costs to take a family for a movie show and dinner afterwards.
Many people can afford to save a lot more each month for a pension plan. When you have a pension assurance, you will not need to be dependent on your children or family members for any money. You will be able to hold your head high, and manage your & spouse expenses for as long as you live.
Get life cover for main breadwinner to shield family’s dreams
Having a goal is a great way to reach financial goals. You may have saved and invested money for an emergency corpus, and pension plan. You may have kept separate funds for your child's higher education, marriage etc. You would be also paying medical insurance premium to shield from exorbitant hospital bills.
But, what if you are unable to earn after a serious accident? What if you meet a most untimely death? Your spouse's pension requirement would still be there. Your children would still want the higher education they deserve, and the grand wedding you wanted for them.
In your absence, there is only one sure-shot way to guarantee they lead a respectable life: life insurance money.
If the main breadwinner of a family insures his life, this creates a complete shield around dependents. In the event of untimely death or disability, family’s dreams should not be disturbed. The life insurance policy can pay your nominee the amount of money you want.
For getting protection for your family, you will need to buy a term policy by paying a premium, which is equivalent to paying for coffee every day. Yes, a 30-year old person can buy a Rs 2 crore life insurance by paying Rs 50 per day.
If death happens prematurely, the family can get a lump sum amount of Rs 2 crore. This amount will be adequate to fund any plans and support their lifestyle in future. Thus, life insurance makes your family and dependents 'atmanirbhar' if you are no longer physically present.
(Written by Kumar Shankar Roy. Author is a financial journalist, specialising in personal finance.)
Disclaimer: The views expressed above are solely of the author and not those of ETV Bharat or its management. Above views must not be construed as investment advice and ETV Bharat recommends readers to consult a qualified advisor before making any investment.
If you have any queries related to personal finances, we will try get those answered by an expert. Reach out to us at businessdesk@etvbharat.com with complete details.
