When you contemplate financial planning, what’s the initial thought that springs to mind? For many individuals, investing often takes center stage in their considerations, particularly during the early stages of their careers. While investing is undoubtedly pivotal, there are crucial financial tasks that should precede your foray into the world of investments.
Investment is merely one facet of the broader financial planning process, and there are other vital obligations that merit your attention as you embark on your financial journey.
So, what are these pre-investment tasks that deserve your focus?
- Cultivate Simple Budgeting Habits: Regardless of your income, whether it’s Rs 30,000 per month or a six-figure sum like Rs 2 lakhs per month, creating a budget is an absolute necessity. Constructing a monthly budget tailored to your expenses and lifestyle helps inculcate the practice of saving a portion of your income. Sometimes, aiming for a lofty savings goal can seem daunting. To make it more manageable, break down your monthly savings target into daily or weekly objectives. For instance, striving to save Rs 5,000 per week feels more attainable than amassing a lump sum of Rs 20,000 per month. This approach renders adherence to your budget a more attainable task.
- Establish an Emergency Fund: Just as an umbrella proves its worth during a sudden downpour, an emergency fund becomes invaluable during financial crises. An emergency fund, also referred to as a contingency or rainy day fund, serves as a financial safety net for unforeseen events such as job loss, severe illness, disability, or substantial salary reductions. Ideally, your emergency fund should cover at least six months’ worth of your recurring monthly expenses, but it’s even better if you can set aside 9 to 12 times your monthly outlays. A larger fund provides enhanced security during turbulent times.
- Secure Life and Health Insurance: In light of the COVID-19 pandemic and widespread job layoffs, neglecting life and health insurance can be a precarious oversight. Life insurance plays a pivotal role in providing a replacement income to your dependents in the unfortunate event of your untimely demise. It’s imperative that your life insurance coverage equals at least 15 times your average annual income. Term life insurance is frequently recommended for its extensive coverage at affordable premiums.
- Prioritize Health Insurance: In addition to life insurance, health insurance holds equal importance. A comprehensive health coverage shields you from the escalating costs of healthcare. The absence of health insurance could leave you vulnerable, with a single hospitalization bill capable of erasing your lifelong savings. Even if your employer offers group health insurance, these policies often fall short in covering substantial hospitalization expenses, and they may lapse when you change jobs. Consequently, you might find yourself without health coverage until you secure another employer-provided health plan.
Also Read
Turning Your Early Retirement Aspirations into Achievable Strategies
In conclusion, before venturing into the realm of investments, it’s imperative to establish a robust financial foundation. This includes crafting a budget, creating an emergency fund, and procuring both life and health insurance. These essential steps safeguard your financial well-being and lay the groundwork for successful investments in the future.
