What is the best gift you can give your family? A new Car? An awesome vacation in Europe? A new diamond necklace for your beloved? A new PlayStation for your son? The list is endless. However, this isn’t what we are talking about here...
We all work very hard and try to save up money for our future, our family's future and retirement. In many cases we are the only bread winner for the family. With women going to work more & more, the % of families where the Man is the only bread winner is coming down by the day. Anyways, this article can be suitable for any individual who is gainfully employed and has a family...
So, What is this Gift?
This gift isn’t that simple. If I have to summarize it in three words the gift will be
"A Safe Future"...
So, how can you ensure a safe future for your family when we are around and even after we are gone? That is what this article is about!!!
Idea No. 1: Keep Debt to the minimum (Preferably Zero)
This could probably be the biggest gift you can give your family & survivors in the unfortunate event of our demise. Imagine the mental & psychological stress our family will be after our demise. To top it all off, imagine how much more harder it would be for them to repay debt that we did not repay yet. Even if we don’t leave them a million dollars in inheritance, at least we shouldn’t be leaving them with debt to repay after our time. Isn’t it???
So, what can we do to keep our debt to the absolute minimum?
Tip No. 1: Always choose higher monthly EMIs over longer durations. A 5 year loan at Rs. 5000/- per month looks more appealing than a 2 year loan with a Rs. 15,000/- EMI per month. However, the lower your tenure the lower the loan amount remaining with every passing month...
Tip No. 2: Always choose to opt for the Insurance coverage that comes with loans. Most banks these days ask if you are willing to sign-up for insurance to attach to the loan. If they do, don’t refuse. The few hundred rupees fee they collect for this would definitely be worth it in case anything unfortunate happens to us. The bank will use the insurance policy to cover for our outstanding amounts and will not disturb our family.
Tip No. 3: Always choose to opt for the credit protection plans that come with Credit Cards. Most credit card companies these days have credit protection plans that charge you something like 0.1% of your outstanding amount to cover for the payment in case anything happens to us. So, for a 10,000/- rupees statement outstanding on our credit card this will work out to something like Rs. 10/- and in case anything happens to us, the credit card company will claim this from the insurance and will not trouble our family
Idea No. 2: Buy Pure Term Insurance Policies to cover at least 10 years’ worth of your annual salary as Maturity amount
This is pretty straightforward. I have always been supportive of pure term insurance policies because they give the most bang for the buck we pay them. For ex: Rs.10,600/- per year could get an insurance coverage of 1 crore for a non-smoking 30 year old person. This investment may sound like something you will never get back but think this way, if you are to buy an insurance policy that actually gives you the same 50 lacs at maturity (after 25 years) you will need to invest approx. 2 lacs every year...
Pure term insurance policies are the best for risk coverage to ensure that our family has adequate financial backing in case of an unfortunate event.
Note: The example premium amount was taken from an online quote for pure term life insurance policies. The policy is a 30 year term where I pay this amount every year and if anything happens to me in the next 30 years, my family gets 1 crore.
Idea No. 3: Start Saving for your Retirement TODAY!!!
Most of us (Including me) have been working for many many years and always dream about starting to accumulate money for our retirement. The sad truth is, even after almost a decade of being employed my retirement corpus isn’t something I can be proud of. Unfortunately this is the case for almost everyone. We work hard to make ends meet and by the time we can think about saving for retirement we are just a few years from retirement and end up with not much or even no retirement corpus. This should not happen to us. Decide and start saving up for your Retirement.
There is a whole series of articles in this blog that cover topics like why we need to plan for retirement, how much money we will need, how to save up that money etc. You can read it here: Retirement Planning Series
Let us all decide to act on these 3 Idea's explained above and try to give our family a safe and secure future!!!