- Do not mix investments and insurance. Purchase a pure term insurance. Do not purchase the entire protection from one company. Do purchase some protection from LIC. Buy 25% of the total protection from LIC. Buy next 25% from some other company. Buy remaining 50% from 3rd company. The total protection should be sufficient enough that after paying all the the outstanding loans, it should be able to generate 50K per month for next many years. This protection amount should be other than what your company provides as term insurance, if any it provides. Do not go above board with the amount like 10 times of your annual income and all. This is not a wealth generating tool for your family in case you are not there any more.
- Buy a family floater health insurance policy of 5 lakhs coverage.
- Buy a super top-up plan of 10-15 lakhs coverage with 5 lakhs as deductible.
- There is a difference between top-up and super top-up plan. Top-up plan pays only if the single hospitalization exceeds the deducible. But in super top-up, the deductible is sum of all the hospitalization in a policy year. So opt for super top-up plan always.
- Even if your company provides the health insurance for your family, please go ahead and buy a personal policy as well. This will help if you are out of job for some time or say in your next company the coverage is not enough.
Regular savings and other habits
For the below mentioned points the monthly take home salary should be assumed to be the total of your and your spouse salary, if both of you are working.
- Save 50% of your take home monthly salary. EMIs on your home loan counts as savings but EMIs on your car loan doesn’t count as savings.
- Save this money using liquid funds, debt funds and equity funds.
- Start the SIPs so that the savings move to these finds automatically at the very beginning of the month. The remaining money is then available for you to spent.
- Most of the times the fees of kids school is paid quarterly and that is a substantial amount. The monthly equivalent of this amount should be put in a liquid fund and then you can transfer back this amount in your bank to pay the fees. Liquid funds don’t have any entry and exit loads and at withdrawals the money is received in the account the very next day.
- Ideally the on road price of your new car should not exceed 6-8 times of 50% your take home monthly salary.
- 2-5% of your take home monthly salary should be used for enhancing your skills by taking on-line and off-line courses and doing the certifications etc. This amount should be counted as your saving amount.
- If there is any family business or someone is starting a business; do invest in that instead of doing the savings in mutual funds. Also count any EMIs for any loan that you have taken for that business as your savings.
- Keep 6 months of your overall monthly expenses in liquid form either bank account or liquid funds.
Any investment that you think will benefit you in future should be counted as savings. Hence EMIs for any business, EMIs of home loan or skill enhancements cost should be counted as savings.