Preparing for the worst...#covidtimes

We dont expect the worst..thats human nature. We hope ..and hope for the best. However as covid 19 has shown us, things can become difficult and we need to be prepared financially for tough times to come.

As we see across the world, companies are under distress, millions of people are out of jobs and millions of people are facing salary cuts. When will this become better? We can only hope. 

There are a few things that we should do immediately to ensure a safe future for ourselves and our near and dear ones. There should be no delay for any of these actions.  Here they are..

1. Get a personal medical insurance 

Most people are used to believe that they dont need any insurance because they are covered by their companies. The big point here is that they have to be employed by the company for this coverage to be available.  

If you are in a company which is going to have significant issues in its industry or even if not,. It is just prudent to get health insurance asap for at least the next few years.  Getting a new job may not be that easy ... and health can be impacted anytime. 

If you are a student who is just graduating.. check if you are still eligible for health insurance under your parents... if not.. get one!

2. Build quickly your emergency fund

One needs at least some money in case of challenges. If it requires you to make use of the moratarium ( only if it is a must), evaluate that option also.. but not in any case for credit card bills ( that interest rate is too high!). Else with the lockdown one has understood what is really required in terms of expenses. 

If you are investing via sips in equity .. move that to the emergency fund ( liquid or arbitrage) until you have it completed.  Dont worry.. the market will remain volatile for some time.

3. Insure your life

Get a life insurance.  This should be at least 10× of your salary. This is again something that one cannot depend on the company policies. That may also not be sufficient. 

4. Make a will 

This is the toughest of them all... thinking about death and planning for it. But it needs to be done.  Ensure you have it written down and you have shared your investment details with your spouse. 

4 things. Thats it .. not more.  

Hope will save us. But lets be prepared for difficult times. Hopefully it will not happen

Lets prepare.. its simplefinancialsense 

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April is ending .. have you made your plan?

Its one month post the  new financial year and it is the right time to start out on our financial planning.. If not already late.

 

Every year , we run around to get the tax saving schemes done in the month of feb- march.. just in time to close out the financial year... but sometimes late to get the tax benefit, and hence we need to just apply for the refund in the taxes.

 

Here are the following things you should do asap.

 

Set up your tax saving investments in your salary plan

 

The company cuts our tax at the time of giving out our salaries, For this to be tax efficient , one needs to ensure that we have the right tax declarations in the system. If not done, the companies usually don't reduce the taxes at the end of the financial year. it is best to do this asap, and in the next few days if not already done so.

 

 

Start your SIPs in your 80CC and 80CC(D)

 

While there is money that goes into the employee provident fund, for most this is not sufficient. You should decide where else would you put in your money to ensure the right tax saving benefit.

 

This could be PPF, or ELSS.

 

It is good to start doing this asap in a SIP manner, which ensures that you have averaging benefits + you have the benefit of saving earlier and hence getting the benefit of compounding for a few more months.

 

If you are investing in PPF, please remember that you need to put in the money before the 5th of the month, for that money to be counted for interest for that month ( PPF is monthly interest, unlike banks which are now daily interest regimes- these used to be earlier in the 80-2000 monthly interest also)). For Sukanya sammriddhi schemes, this is till the 10th of the month.

 

 

Fill in the form 15H

 

If you are investing and you don't need to pay taxes, please fill in the form 15H and give it to the banks. This will ensure that you don't have to pay the TDS and not get into the hassle of tax refunds.

 

 

Review your Mutual fund SIP's and Funds

 

This year, most of the mutual funds are changing what they stand for - especially after the SEBI order. By the end of April, most of this should be completed. It is time for us to review the fund, check if the new fund is what we want to continue investing in or making a change. Ensure that while making a change, you don't have to pay LTCG beyond the limit of Rs 1L.

 

Get your children their own PAN

 

Even a new born can get a PAN. So if you haven't yet applied for the PAN for your children, please do so now. Its simple enough to do this online.. and the Card is delivered to your home in two weeks time.

 

The above are a few of the ideas on the things to get done asap this month..

 

life can become simple by following these few things...

 

its simplefinancialsense

Different needs need different portfolios

Financial planning is not an art.. its quite simple really, all we need is some commonsense.

We plan for different things in life,  we plan for new things and new requirements all of our lives - even when we will be grandparents.

The most important thing in this is the timeframe and the risk than one wants to associate with that need.

Lets explain the two dimensions in a little bit more detail.

Timeframe : this is very simply the time that you have to fulfil the need that you have defined .

Risk: this is the inverse of the importance of your need. So if it is extremely important you want lower risk.

Here is a sample chart on the two dimensions 

Need.                                   Timeframe.                                   Risk allowed 

Child's education.                15-18 years away.                        Low

Childs marriage.                    22 years away.                            Low

International holidays.             3 years away                              High 

Now of course my importance to these needs may be different to yours , so feel free to create your own list and importance.

So we were discussing the need for different portfolios for different needs . The above discussion gives you a good view on why these portfolios need to be different .

Here are some key requirements to understand if you need to have different portfolios 

1, if the time frames are different .. Eg the need for international holiday and the child education ... Keep them separate.

2. Different portfolios enable you to track better. .. So keep them separate where this will be critical 

It's not really rocket science.. Make the table of your needs and define your portfolios.

It's simplefinancialsense