5 things to do with your money

3. Get yourself insured

Life today has become a lot more uncertain than ever before. Therefore, taking life insurance is another objective that should rank high in the priority list of all individuals. Simply put, the purpose of life insurance is to indemnify the nominees/dependents of the insured against an eventuality. So life insurance must form an integral part of the individual’s financial planning exercise. In addition to life insurance, individuals should also be equipped with adequate medical insurance.

Note that we haven’t mentioned life insurance while discussing tax planning in an earlier point. This is because it’s time insurance got its due as an independent entity unlinked to anything but your life. Our advice is don’t mix the two, don’t chase tax benefits while taking a life cover.

There are broadly three types of life insurance plans; term plan, endowment plan and ULIPs (Unit- Linked Insurance Plans), available at investor’s disposal. While ULIPs are not an ideal avenue to take life cover, term plans, the cheapest and most effective form of life insurance are best suited for this purpose.

4. Prepare yourself for contingencies

Contingencies/emergencies never announce their arrival. But that does not mean we close our minds to the possibility of their intrusion in our lives. As always, the best way to deal with such a situation is to provide for it well in advance. Such situations could possibly arise out of an accident / operation that is either not covered by mediclaim or exceeds the mediclaim limit or it could be another expense that you have provided for (like a buying a house) which actually falls short at the time of purchase. At times like these, having a contingency fund can prove to be a boon. How do you know how much to save for contingencies? While there is no formula for the same, having 10%-15% of your entire portfolio in low risk investments should arm you adequately during a contingency.

5. Don’t forget charity

Even before Bill Gates and Warren Buffet began doing it, charity was always necessary. If you have the money, it’s only fitting that you share some of it with the less or under privileged. Although some charities qualify for tax benefits, our advice is you ignore them and just focus on giving some money away without worrying about how you can benefit from it one way or another.

PersonalFN is a Mumbai based Financial Planning and Mutual Fund Research Firm.