New year financial resolutions for everyone

Nope, this post isn’t about any investment plan. Investments should be started only after you have the following targets achieved.

1. Health Insurance and Super Topups

You should have a proper health insurance coverage of a minimum of 5lakhs and a super top-up insurance of anything above 20lakh. You can opt to skip this initially if you have company-provided health insurance and you are tight on finances but top-up is still a must. With the rising cost of health insurance, you never know what is the right coverage amount. Typical health insurance would cost around 8k-10k for a 30year old healthy person for 5lakhs. If you are married then do get a family floater.

2. Term Insurance

Term insurance is a must for every earning individual, and it should be about 10-20 times your annual income. This provides support for your family in your absence. 10 times is the minimal amount you should have. If you earn about 10lakhs per annum then you should at least have a cover of 1Crore. However, because of inflation, we suggest you opt for 20 times the value. The best part is the low cost of this insurance.

3. Optional accidental and Critical Illness Insurance

Accidental insurance provides for monetary support if you meet with an accident and are left with limited mobility for doing your day-to-day job. You must take this cover if you have to travel regularly as a part of the job. This provides financial assistance if you meet with an accident and lose any limbs.

Critical illness Insurance must be taken if anyone in your family has a history of critical illness. An upfront amount is paid if you are diagnosed with cancer or had a heart attack etc.

4. Emergency Funds

This is to meet your any emergency needs like any hospital emergency or sudden job loss or anything else. You should always have liquid cash in suitable instruments available for immediate access and this should be equal to your 6 months of salary.

5. Reduce Debts

This should be yet another bigger priority. Try to reduce debts whatever you have. To start with I’ll say try to close all that has interest rates greater than 8-9%. This is under the expectation that your equity investments will generate returns higher than that and you don’t need to pre-close loans that have interest rates less than 8%.

How to start?

If you don’t have any of these yet then let’s start the process step by step.

  • Get medical insurance in Jan. It’s mostly an annual policy. You can compare the rates provided by your bank and web aggregators like policy bazaar etc and take whichever is better. You may even contact me for any health insurance.
  • Get Term insurance in Feb. I’ll prefer it to be a monthly one. Also, take top-up health insurance in Feb. Visit Term Insurance Buying Guide before buying Term insurance.
  • Emergency funds preparation should be started in Jan itself. I know you would already be burdened with health insurance in Jan but doesn’t matter. If you can save even a 100/- then that’s enough.
  • Start the debt reduction process by March. Cut on expenses if you have high debt.
  • Start a SIP even if you just have a 100/- left. There are many high performing funds that allow you to start with just 100/-.

Just remember slow and steady wins the race. You need to go slow and steady, then only you will be rich. Everyone isn’t lucky to get rich by just winning a lottery.

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