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How to plan your finances

How to plan your finances

Anshul is a 26-year-old management graduate from a top business school in the country. He earns well, is single and the only child of his parents. His parents are not financially dependent on him and he has no other financial dependents.

He worries that his parents’ portfolio may not have much ability to withstand any financial shock such as a big unplanned expense, medical or otherwise. His parents have been conservative investors and he does not want to meddle in their finances.

He wants to ensure that his parents do not suffer financially once he is not around.

Health comes first

Additionally, he wants to understand how he must approach his investments. He has no real financial goals. He likes to travel but that part is quite manageable, given his level of income. He does not plan to buy a house right away. He would like to consider buying one after he gets married.

Since Anshul is worried about his parents’ financial well-being (in his absence), he needs to focus on insurance portfolio first, not just for himself but for his parents, too.

He has got his parents covered under his employer group health insurance plan. However, the coverage is only there as long as he is with the current employer.

His mother is aged 61 and his father is aged 62. They are in good health and have no pre-existing illnesses.

Life and disability cover

He must buy a family floater health insurance plan of at least ₹10-15 lakh for his parents. While he must buy a private health plan for himself too, he must buy an individual plan and not a joint family floater for his parents. The insurance companies price the family floater policies based on the age of the oldest member and health of the weakest member. By keeping himself out of the family floater, he will be able to reduce the premium for the entire family.

He must buy an adequate life and disability insurance for himself too. While the emotional void of losing a family member is difficult to fill, life insurance proceeds will ensure that they do not suffer financially. A term life insurance plan is the best and the cheapest way to buy life insurance. An accidental disability plan will come in handy if an accident results in disability and compromises his ability to earn.

Invest smart

About his investments, given his age, Anshul can afford to keep things simple. He needs to set aside money towards a contingency fund and any anticipated short-term expenses. Such money can be kept in fixed deposits or liquid funds.

The remainder of his savings can be routed towards a long-term portfolio. While he is young and can afford to invest aggressively, an aggressive portfolio does not mean 100 per cent equity. He must follow an asset allocation approach with an appropriate allocation to equities (both domestic and international) and debt.

A 60:40 equity:debt allocation is fine. He has to adjust equity exposure upwards or downwards slightly as per his risk appetite. He can also gradually add gold (5-10 per cent) to the portfolio for diversification. He must review and rebalance his portfolio annually.

Anshul must get the nominations right and keep the parents in the know of his investments and insurance. He can reconsider nominations when he gets married.

The writer is a SEBI-registered investment advisor at personalfinanceplan.in

This article is auto-generated by Algorithm Source: www.thehindubusinessline.com

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