Invest early and save enough to avert impact of recession on your family

A recession is one of the stages in an economy. Nevertheless, we should take this as a cautionary warning about the impending rise in unemployment, decreased incomes and hyperinflation. It will impact our purchasing power and living standards. So, we need to search for ways to come out of the crisis in advance.

Hyderabad: Every family desires a stable and sound financial status, but it all depends on what they do and how they plan to reach that position. Living standards improve only when we set goals and achieve them. It ensures a hassle-free financial journey in all stages of our lives. We cannot escape from a crisis situation like a recession. What we need to remember is that recession will only delay our goals temporarily. At the same time, we must take all necessary steps to avert its adverse impact on our families.

A family aspiring for a strong financial footing should learn to control expenses. One-third of salaries should be diverted for savings and investments, spending only the remaining amount. This is a challenging task indeed. You should list out your expenses in order and find out where the most money is being spent. This will help in reducing needless expenditure. We should increase our savings in proportion to our increasing incomes. We should be careful not to increase our expenses. Only this way, we can create wealth for our families.

Investments are a must for any family to achieve financial stability. The best results will be there only when we begin investing early and for the long term. Set a financial goal and plan accordingly. For example, a 40-year-old person can invest up to 70 to 80 per cent in equities. Twenty to thirty per cent can be put in debt plans and gold funds. With increasing age, this ratio undergoes changes. When we turn 60, equity investments should come down to 30 to 60 per cent. While opting for equity and balanced funds, we should prepare a portfolio of debt-based plans, and bank and postal fixed deposits. Investments in gold should not exceed 10 per cent. We can invest in sovereign gold bonds, gold ETFs (exchange-traded funds) and gold funds.

Financial standing should be strong enough for a family to overcome any hardship. This is possible only with insurance. Every income earner should compulsorily take insurance up to 20 times of annual earnings. If one earns Rs 5 lakh per year, they should take up to Rs 1 crore insurance. Also, Rs 5 lakh family health insurance is required. Even if you have group insurance, you should take personal cover. At least, a super top-up policy is needed. Utmost discipline is required for implementing a financial plan. A strong desire is needed to control expenses and make investments.

A contingency fund should be ready with us to tide over unexpected financial difficulties. A fourth of your savings should go to this contingency fund. Out of every hundred rupees we save, Rs 25 should go to this fund. The remaining Rs 75 should be invested. Under prevailing circumstances, a family should be ready with a contingency fund enough for 12 months. At the same time, even if this fund is exhausted, we should make all efforts to replenish it at the earliest.