5 things one should plan on personal finance.

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1. Life Insurance – Adequate life cover. Buy a term plan with adequate cover (10 times or 20 times of annual income). Insurance is not an investment product as the cost of traditional endowment plans and money-back plans is high and returns are lower than fixed deposit interest. ULIPs have higher cost than equity mutual funds.

2. Health Insurance or Mediclaim
 –Adequate health care for the whole family. Medical emergencies come without any warning and hence can put a lot of financial burden on the family. Start early cover yourself, spouse, and children under one plan. Have a separate health plan for parents.

3. Emergency Fund –
All of us need to create an emergency fund ( 3 to 6 months salary ) to be able to provide for urgent unwarranted expenses. We should not touch our long term investments for ad-hoc requirements.

4. Goals in Life –
Set proper timelines and corpus targets for all types of goals in life. Purchase of house, purchase of car, children’s education, children’s marriage, vacations etc should not be totally at the mercy of loans. Loans are costly and need to be availed only for needs ( essentials say your first home) and not for every want and desire (luxury and enjoyment). Loans actually mean you are spending more than what you are earning. Have a proper investment plan for each goal. Short term goals can be managed with short term investment plans and long term goals can be managed with a combination of direct equity, balanced funds, diversified equity funds, and a small portion into thematic or sectoral funds.

5. Retirement fund –
Sudden death of an earning member puts the whole family into problem. Life insurance takes care of that eventuality. However, with improved healthcare, the life expectancy of human beings is going up. Living long is riskier than an early death as medical emergencies need to be taken care of, quality of life needs to be maintained without a source of earning. Hence need to plan for retirement fund which will take care of all the needs that arise post-retirement.

A structured financial approach will make your existing life more enjoyable and carefree. How much one earns is of not much significance. How much one saves and where does one invest makes all the difference.

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