Updated: Mar 12, 2021
We all start our adulthood working for money. Our parents taught us, if you work someday you would have enough to be able to retire. Due to this, we are all good at working and making money. But how good are we at making money work for us, sweat it out to meet our goals!
Life is about experiences, about spending time with loved ones, to provide for oneself and loved ones and to make a difference. Yes, one needs money, but earning money is not a goal... In fact, the money that you earn needs to work harder than you to make sure you can live your life!
I have a simple FIVE step process that I want to share with you.
Step 1: Insure your Life
Step 2: Insure your Health
Step 3: Plan for Retirement
Step 4: Plan for Goals
Step 5: Manage Taxes Efficiently
1. Insuring your Life: The first thing we need to do is to insure our lives, to make sure that our loved ones will continue to thrive and prosperous even in the event of the death of the earning member(s) of the family. The most important thing to understand here is, that insurance is NOT investment. Don't expect any returns or money back from your life insurance. It is what it is... Insurance!
2. Insure your Health: Diseases and hospitalisation not only destroy a person's health, but sometimes destroy the entire household savings. All the goals, aspirations and dreams get thwarted by one major hospitalisation which could wipe out your life savings. Therefore, it is critical to get a Health insurance policy to take care of such an eventuality. Here, the trick is to start early and to go for family floater plans that cover the entire family at a reasonable cost.
3. Plan for Retirement: The earlier you start planning for retirement, the easier the task would become. It is important that you forecast where you might want to live, how you would want to spend your days and figure out a corpus needed to live comfortably. Build in things like vacations, gifting and other discretionary expenses (you wont stop living, just stop working for a living). Also important to bake in inflation, as that's our biggest enemy here. Once your retirement plan is ready, you can start working towards it!
4. Plan for Goals: Whether it is that fancy car, your own wedding, kids' education at that Ivy-league university or buying a house, you must set goals and then plan for them. Again, having a plan for all your goals tells you where you want to be. Then a financial planner can advise you on how to get there and you can get started. But important to start writing down these goals.
5. Manage Taxes Efficiently: I talk about tax management in the end, because quite often, I see intelligent friends and colleagues spend too much time and energy on this, and not on the first four steps - which are far more critical. That said, efficient tax management helps you gain that extra return, that extra bang for your buck. This needs to be different for different people. For some, just the discipline of tax-efficient investments is enough, while others might need to get tax efficient structures such as HUF and such.
The five steps look simple, are simple and once you start taking them, you will find immense peace-of-mind having taken them.
Hope you liked this short read. Over the last few months, I have written about each of these steps in linked articles and shared my learning which, hopefully would be useful to all the readers.