BE­FORE YOU SPLURGE, AS­SESS YOUR NEEDS

BUY­ING NEW GAD­GETS MAY KEEP YOU IN SYNC WITH OTH­ERS. BUT IT SHOULDN’T GET PRI­OR­ITY IN YOUR FI­NAN­CIAL PLAN­NING.

The Asian Age - - Money - Ad­hil Shetty The writer is CEO of BankBazaar.com

Last month, the new gen­er­a­tion of the iPhone was an­nounced. The top-line model iPhone X, ex­pected to be launched in In­dia in Novem­ber, re­port­edly costs `1.02 lakh. Who doesn’t love shiny new toys? The lat­est iPhone in your hands will give you many tech­no­log­i­cal ad­van­tages. It will also earn you brag value and the re­spect of your peers. How­ever, it is an elec­tronic item, and it is a de­pre­ci­at­ing as­set, which means it will start los­ing mone­tary value the mo­ment you buy it. Sim­i­larly, there are plenty of other smart­phones and elec­tronic items that you are, no doubt, look­ing to buy dur­ing the fes­tive sea­son. Be­fore you make this ex­pen­di­ture, ask your­self these five ques­tions to as­cer­tain that you have at­tended to the high-pri­or­ity items first.

IS MY LIFE IN­SURED AD­E­QUATELY?

An ad­e­quate life in­surance needs to be a part of ev­ery fi­nan­cial port­fo­lio, es­pe­cially for those who have fi­nan­cial de­pen­dents. You need to as­sess the long-term mone­tary needs of your family. Money re­quire­ments such as in­come needs of the sur­viv­ing spouse, ed­u­ca­tion costs of chil­dren, health­care, util­i­ties, rent, EMIs, daily needs etc. should be ad­e­quately cov­ered by in­surance. If you have de­pen­dents, you may be putting their fu­ture at risk, if you haven’t bought a term plan. If you are a 30-year-old, salaried male with no to­bacco habit, you can avail a life cover of `1 crore for an­nual pre­mi­ums start­ing from `6,511.

IS MY FAMILY IN­SURED AGAINST HEALTH EMER­GEN­CIES?

LAhealth emer­gency has the po­ten­tial to de­plete a family’s en­tire sav­ings. The treat­ment of a crit­i­cal ill­ness such as can­cer can cost sev­eral lakh of ru­pees. To pro­tect the family against such emer­gen­cies, we need health in­surance. A 30-year-old male can buy an in­di­vid­ual cover of `5 lakh for an­nual pre­mi­ums start­ing from `5,994. You can also cover all mem­bers of your family un­der a floater cov­er­age where the pol­icy ben­e­fits are shared. Hav­ing health in­surance is manda­tory. So make sure that all mem­bers of your family are cov­ered.

HAVE I STARTED A RE­TIRE­MENT FUND?

et’s say you are 30 years old today, and your monthly in­come re­quire­ment is `40,000. Con­sid­er­ing an av­er­age in­fla­tion rate of seven per cent, your monthly in­come needs in 2047 would be `2.84 lakh. In 2057, when you'll be 70, you will need `5.59 lakh per month. As­sum­ing you have a life ex­pectancy of 80 years, and an ex­pected re­tire­ment age of 60, you will need to save at least a cou­ple of crores as your pen­sion fund. So have you started sav­ing up for this as­tro­nom­i­cal money re­quire­ment? If not, start today. If you in­vest `6,000 ev­ery month for 30 years in a mu­tual fund with a CAGR of 12 per cent, you will cre­ate a cor­pus of `2.1 crore. But if you de­lay this monthly plan by only 10 years, you will cre­ate a cor­pus of only `59 lakh, which will be in­ad­e­quate for your re­tire­ment.

DO I HAVE ENOUGH MONEY FOR EMER­GEN­CIES?

Have you set aside a rainy day fund yet? As I ex­plained on these pages last week, a fi­nan­cial emer­gency could ar­rive in many forms: a job loss, a med­i­cal emer­gency, dam­ages to prop­erty, etc. It is im­por­tant to make a com­mon sense as­sess­ment of your own life risks and be fi­nan­cially pre­pared. When the emer­gency fi­nally hits, you will at least be fi­nan­cially se­cure. You should put away at least three to six months of your cur­rent in­come to help you cover such re­quire­ments as rent, EMIs, in­surance pre­mi­ums, util­i­ties, etc. You should use a bank de­posit or a liq­uid mu­tual fund for build­ing this fund.

DO I HAVE OUT­STAND­ING DEBT?

Lastly, be­fore you splurge on an elec­tronic item, check if you have out­stand­ing debts: a pend­ing credit card bal­ance, a loan you didn’t re­pay, or some other bor­row­ing you are cur­rently ser­vic­ing. Re­pay­ment of your debt can help im­prove your credit score, al­low­ing you to bor­row fur­ther at at­trac­tive in­ter­est rates. On the other hand, fail­ing to re­pay your debt will re­flect ad­versely on your credit his­tory. If you re­pay your EMIs reg­u­larly, con­sider mak­ing a pre-pay­ment to lower your loan bal­ance since the in­ter­est rates have bot­tomed out. If you have a pend­ing credit card bal­ance, re­pay it on pri­or­ity since it is a very ex­pen­sive form of debt.

Once you have set­tled these five top­pri­or­ity needs, you have man­aged your money well and have earned the priv­i­lege to in­dulge your fan­cies.

IN­SURANCE FOR LIFE, HEALTH COVER, SAV­ING MONEY FOR RE­TIRE­MENT AND RE­PAY­ING OLD DEBTS MUST PRI­OR­ITY OVER BUY­ING THE LAT­EST ELEC­TRONIC PROD­UCTS

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