“If you fail to plan then you are planning to fail”- Benjamim Franklin
The aforesaid quote goes very well in terms of the financial planning of a person also. Each one of us work very hard to earn money however, our personal finance is the most mismanaged part of our life. If at the beginning of each year we could sit and do a comprehensive planning, it not only will help us to achieve the early financial freedom but will also keep us free from insecurities of any unfortunate events in life.
Discussing planning at the beginning of a new financial year has its own importance as it gives us a chance to make a fresh start before we set our budget in order. I would therefore want to make this one as a series of importance of different types of planning which are a part of a bigger umbrella of financial planning.
In this part, I will throw light upon the importance of insurance planning followed by tax, investment and retirement planning.
This is one of the critical parts of overall financial planning as the motive here is to protect ourselves and our assets from any unforeseen event. What insurance does is that it compensates for the monetary loss arised out from that event. For the purpose of better understanding let’s divide insurance into three parts
I consider this as one the basic and utmost necessary cover where you must spend a small amount of money to cover the medical cost of the treatment for your own self and the dependants which really can cause big damage to anyone’s budget if not secured. Given the lifestyle of today’s fast pace life, the diseases nowadays are becoming more common and regular and that is why getting a medical insurance policy from a company of high repute is highly recommended. Even the high cost and medical inflation these days makes a very strong case of purchasing a health insurance policy.
Though no money can replace the presence of a human being with us but if we have people who are dependant on us, we need to take care of them after us. Hence, a least part of our earning can be replaced using a life Insurance cover. Although, there are technical ways of calculating a human life value but there is one thumb rule which says that we should cover ourselves by 10 times of our annual earnings. For example, if our annual income is 10 lacs then we need to cover ourselves by 1 cr and so a pure insurance term cover of an insurance company with a high claim settlement ratio is highly recommended.
Putting up a shield on our assets like home, office, vehicles is a necessity now. In fact, insuring our vehicle is extremely important. Likewise, saving our assets from fire, burglary, earthquake etc. costs us a minimal amount and can be very effective in case of any mishappening.
What insurance does is that it protects the monetary value in addition to which it also gives the insured a peace of mind which in itself is a tough thing to find these days.