Money Planning For The Middle Class: Building A Financial Plan That Can Weather Any Storm

By Dr Arindam Banerjee

As the stock market kept swinging unpredictably, at the beginning of this year, Chandrani Banerjee, 43, felt a familiar pang of fear in Kolkata. She felt like life is full of sudden problems all the time, in spite of her being one of those who knows how to make a good financial plan that can handle anything that comes up. 

These days, it's not enough to just have a good financial plan, one needs to be ready with alternatives ready for execution. This is because jobs change, health problems happen, and market cycles change quickly. It's hard for people in India's middle class to pay their bills, help their parents, make EMI payments, save for children’s college, and plan for their retirement all at the same time. How can you make a good plan when the conditions are never stationary?

Start with a Strong Emergency Fund

Establishing a good all-weather financial plan consists of basic steps. It starts with creating a backup fund. People mostly go wrong when they only look at the returns on their investments or saves and forget about their basic financial safety nets. Creating a fund for emergencies is the first thing that needs to be done. Experts say that one should save enough for at least six to twelve months of living costs in a separate account. If the worst does happen, she knows she has time to get back on her feet, which helps her sleep.

Secure Yourself with Adequate Insurance

Keep things safe that you can't lose. Many of us think that insurance is only a way to save on taxes, or even worse, they consider it as part of investments. Making sure you and your family have adequate health insurance is the first step to a good plan. If you or a family member gets hospitalized, your bills could go through the roof. Next, if you have people who depend on you, don't forget to get short life insurance. It doesn't cost much, and its only goal is to give your family monetary protection in your absence.

Diversify to Reduce Risk

Another key aspect is to spread your risk. Fixed deposits, stock mutual funds (through SIPs), the Public Provident Fund (PPF) or the Employees' Provident Fund (EPF), and maybe even gold are some of the ways that most Indians invest their money. Market changes can be scary but remember that stocks generally do better than other investments over the long term. It is important not to "time" the market. If you want to avoid that, keep saving regularly and add more to your SIPs as your income grows. People like to invest in gold because it is safe. It shouldn't make up more than 5–10 per cent of your assets.

Also Read : Is A Personal Loan Right For Your Wedding? Here’s What You Need To Know

Reconsider Real Estate Priorities

One should consider real estate more as a consumption and not as investment. Do not put off other investments in order to buy a house. Instead, think about the long run when you do so.

Review and Update Your Plan Regularly

Make a plan for your money, but don't forget about it. If your job changes, your family grows, or your responsibilities change, you should make changes to your financial plan. At least once a year, give your money a "health checkup." When you get married, have a child, or move into a new home is a good time to go over things again.

Also Read : How To Borrow Against Your Car Without Giving It Up

Avoid High-Risk Shortcuts

Putting your money into weird things like cryptocurrency, microcaps, and tiny stocks is like setting sail in a storm without a life jacket if you want to get rich fast. When you get "free" help from family, friends, or social media, be careful. It's likely not true if it sounds too good to be true.

Set Long-Term Goals and Track Them

Plan for more than immediate requirements. A good plan has clear goals, like saving enough money to pay for your child's college, retiring, or maybe going on a dream vacation. Use tools on the web to get a sense of how much you'll need. Remember that Rs 10 lakh now won't cover Rs 15 lakh tomorrow. Make a separate savings bucket for each goal. If you can, talk to a financial expert who charges a fee only. Do not get help from someone who gets paid by commission.

Personalise Your Financial Roadmap

Remember that planning your money is something that only you can do. Last but not least, do not take the “one size fit all approach”. Your journey will not be the same as Chandrani's. You shouldn't follow someone else's plan; instead, you should make your own based on your own wants, values, and goals. Recessions, pandemics, and personal losses are just some of the storms that will happen. You can stay strong financially even if other people fail if you have a strong and flexible plan. Start your plan today and see it through to the end. It's going to help you with anything that comes up.

(The author is Professor of Finance at SP Jain School of Global Management)

[Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal and do not reflect the opinions, beliefs, and views of ABP News Network Pvt Ltd.]

business