Thoda Aur

Plan for your financial needs – not the future

When planning for Financial Independence it is important to protect your wealth. No, I am not talking about insurance for your wealth. I am talking about wealth being spent for the reason which you could have planned. By planning for the needs you plan for the future. It cannot be the other way around. Let me explain why.

In my life, marriage and medical expenses eroded most of my savings. At that time although I knew the literal meaning of assets I did not understand the importance of it. I spent almost 8Lac on my marriage. We as a society are conditioned to spend on marriage. It has to be big or it’s no marriage. Don’t get me wrong. I still wanted all my family and extended family at my wedding. But a small ceremony could have done good for our wallet. That 8Lac investment with just two years in equity with 15% interest would have given me 9.16Lac. That’s an additional 1.16Lac if I had put that money to work. Time to plan for the future.

I calculated for annual inflation. But you can do the math for 15% interest rate too.

Now the second expense that I am looking forward that could happen anytime will be a medical expense. Maybe its pregnancy or just any ailment. It could happen to anyone. Even a marriage has a finite expense. But in medical, until you come out of the hospital you never know how much is going to be spent. After reading the book ‘Let’s Talk Money’ by Monika Halan I understood the importance of health insurance. I haven’t taken one yet because I haven’t been sick most often. But now I have a wife and its important to think about her too.

The path to choosing a medical insurance is a difficult one. Maybe that’s also a reason why I did not. After listening to the book I have a few pointers that I will look for when choosing one.

  1. No agent. Buy online. Agents take up to 42% in commission from the insurance company and the company charge that money to us.
  2. Insurance company with less track record of denying fulfilment.
  3. A policy which pays the entire expense including the room rent and doesn’t ask me to pay a single paise.
  4. One which doesn’t deny coverage to certain ailments.
  5. A policy to which I can add my children later in life.

Such a company with all these features is going to be difficult to find. Our law and regulators have given these loopholes for the company to make it difficult for us to be completely insured. Our law makes it difficult to plan for the future. But none-the-less, I will find it soon. As I am writing this post we are facing COVID-19 pandemic so I have to be careful with my expenses. Once we are out I will sure buy the policy.

I love to travel and being an entrepreneur I may need to hire new staff or take that new machine that I wanted for long. These are expenses that I know will be coming in the future. So I plan to start a separate fund and start saving for it. This could be equity mutual fund or a liquid fund. Why these funds and not recurring deposit you may ask. And the answer to that is return percentage. In an RD I may get up to 6.5% and I cannot withdraw money when I want. But in mutual funds or liquid funds after the minimum exit period, I can take the money out without any penalty. And they give me a return of 12% on average. I know mutual funds are risky. I am an entrepreneur and I like taking the risk. It’s just my choice.

But the point I want to tell here is that we can anticipate most of the expense. I mean 95% of the expense if you are willing to be open with yourself. There is no limit to the number of funds you can have. Plan for the future with these funds. I am thinking of these funds like piggy banks with a name of it. Travel piggy bank, new machine piggy bank and so on. Naming these funds helps in embedding them in my mind and remember what these funds are for. Mentally it doesn’t let me touch them and use that money for something else.

Earlier I did not do this and kept all money in one savings account. Whom am I kidding? In the long run, I totally forget how much is set for what and I tend to spend it off. That’s is why saving randomly for the future doesn’t make sense. Hence the title save for the needs, not for the future. But if I am to save for Financial Independence and Retire Early I should really keep these travelling to a limit.

I hope in this post I have cleared my head by answering my own questions. A health policy and different SIP funds are next on my agenda. If you want to know how all these go into execution then you can follow me on my Instagram.

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