How should single breadwinner plan finances

Financial planning for the individual with following scenario:

Annual Income: 11. 50 lakhs per annum
No. of dependents: 3
Any insurance taken: No
Group cover: Yes. But parents not covered.
Any loans taken: Yes – Personal loan.

Insurance is the most important thing such an individual should buy. Here are the recommendations:

Life insurance: If you are the only earning member in the family with dependent – wife, mother and father, the adequate life cover should be the top most priority. Best and the cheapest option is to buy a term insurance.

Personal Health Insurance: In addition to this, you should buy personal health insurance even if the family is covered by employer i.e. group cover. In case you switch to new job where group cover is not provided then your personal health cover will take care. Adding a maternity cover will further benefit. Read more on reasons to buy personal health policy.

Health insurance for parents: If parents are not covered under the group plan, comprehensive health insurance should be purchased. Although premium would be on a higher side but it’s worth putting money to avoid financial setback when anything happens to the parents leading to hospitalization. In such a scenario, insurer will take care of the expenses.

Get rid of debt: Before such a person falls in a debt trap, personal loan should be paid off as early as possible.

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Emergency fund: If there is additional cash in the bank account, then the same should be transferred to a recurring deposit account or a liquid mutual fund. Your aim should be to create a corpus of over 2 Lakhs, which will come to rescue at the time of any emergency.

Cut short unnecessary expenses: Start maintaining day to day expense diary and without fail note down the expenses. This way you can know what expenses were irrelevant so that next time you can control spend.

Go Online: If you shop only at physical stores then give a look at online shopping. Buying stuffs online can benefit in the form of cashbacks or discounts. You can create comparison sheet consisting of price of product at store vs. online. If the difference is significant then buy from there.

Increase earnings: Plan to get a job/business which will increase the earning by 20%+ within 2 years. It is the only to way to beat inflation and meet financial goals such as buying house/car.

Short term plan: Large plan of the accumulated savings should go into debt mutual funds and liquid mutual funds if the goal is to buy own house and a car in the coming years. Check out high risk, high return investments.

Medium to long term plan: Once some of the short term goals are met, start investing in equities. This is recommended to beat inflation and for this 40%-50% of the assets should go into equity or equity linked funds.

The most important point is to revisit the goals after 1-2 year and change the investment strategy accordingly.

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