Financial Independence: Every kid’s business!

We just love watching our kids grow. We love to see them bloom into smart, confident and capable individuals, who can support themselves and even their own families, some day.

Most importantly, we want to see them being independent. Independence, is key. Case in point, as our great nation approaches its 75th Independence Day, we realize that for every individual, group, or country to flourish to its full potential, it first needs to be independent, self-reliant and able to think and ideate on its own.

And so, as good parenting suggests, we encourage our kids to develop their own skills, gain experience and stand on their own two feet. But herein lies the problem: Our actions often clash with our intentions.

Because, though we advocate independence, there are some aspects that we always feel our child will not be able to handle without our supervision and management. One of these aspects is the all-important skill of Financial Planning.

Our kids do grow up, but when it comes to Finances, we proclaim them to be ‘just kids’ who will be overwhelmed if required to take financial decisions for themselves.

Well parents, I think there’s something you ought to know about our smart kids, as is evident in these two commonly found case studies:

Can Earn, Can definitely Learn

Like every proud parent, a client of mine was elated when his daughter recently got a job and started earning a regular income. He couldn’t wait to start discussing her financial portfolio with me, saying we both, him and I, could plan it for her, as she was “just a kid” and wouldn’t understand.

Dear parent, if your kid is big enough to start earning, she is surely big enough to start learning about how to handle her own finances.

Let your kids get familiar with the nuances of Financial Planning, experience the ups and downs of investments, learn the importance of patience and form a regular habit of saving for a secure future and for their goals. This is a life-skill that every child should learn. The earlier, the better.

Being Money-Wise

A client of mine wanted to divert a considerable amount from his investments towards a commercial property for his college-going son. His justification? He wanted his kid to have a place that he could use to start something on his own, when required.

Well, that could help. But, only if we could dive into the future and see it clearly. What if he doesn’t even want that commercial property? Why risk a perfectly well-established liquid investment on something that is not even a guaranteed financial goal? Here’s my sound piece of advice:

  1. Let your kid have the right to decide what he really needs. That way, there can be no regrets or mistakes…only the joy of having exactly what is required.
  2. You have to give your kid the freedom to use his own earnings, in his own way. That includes ensuring that you are not a burden on him in your old-age. Your support for old-age is supposed to be YOUR savings, not his.
  3. It is a fact that you cannot be around forever. Making your kid dependent on what you can provide, will only make him weak and incapable of being self-reliant.

So parents, don’t deny your kids the pleasure of building their own castles just because you don’t think they are ready or they don’t have the right tools. Remember, you ARE one of the tools. YOU can fill them with confidence and trust in themselves, so that, even when you are no longer around to guide them, they are well-prepared to handle things on their own. Mind you, that’s the most crucial step in making your kid truly independent and responsible.

Top-up health insurance? Why would I need that?

Surely you took care of your health insurance long back! Or it could be that your employer is taking care of it. Besides you’re healthy and fit, so why worry about it, right? 

We often like to think that all misfortunes are for others and that such a travesty will never befall on ourselves. If corona pandemic has taught us anything, it is the fact that anything can happen to anyone at any time. So, what do we do then? Atleast, be prepared.

We know you already have a health insurance or are probably covered as a dependent. But will it suffice? Will the sum insured (that you picked several years back) be enough to cater to today’s medical expenses? Not sure?

You need to think of a Health insurance top-up 

A top-up health plan is an health insurance cover who have existing individual health plans or our covered by a Mediclaim from the employer. It is taken to cover up for additional medical treatment charges that you may incur beyond your existing cover. 

You must be wondering why would you need an additional cover when you already have one. Here are the reasons worth considering-:

Your current policy may not cover for inflated hospitalization charges

You probably picked up your health insurance several years back. Given the inflation, hospitalization charges have soared like anything in the past years. There are so many charges to cover for apart from the tests and Doctors’ fees, it is unthinkable to get hospitalized without a health insurance with enough sum insured to cover you up well. It will be a good idea to relook at your current sum insured and compare it to average medical expense in an unfortunate case of an illness/accident. Does it seem like it will be adequate? If not, it’s time for you to consider a health top-up.

Office Insurance might not be enough

True, your organization must be taking care of you and your dependents but is it enough? Employers health insurance, though compulsory might not be suitable for you. A plan should cover you for a range of surgeries, as these are medical procedures that cost the most. Does it cover for critical illnesses? Employers Health Insurance plans are mostly group plans which have little or no scope for customization, no guaranteed continuation in case you quit the organization and there are gaps in coverage benefits. However, that doesn’t mean you don’t take it or go for another one. In this scenario, it is best to get a health top up that is suitable for you and will fill for all the gaps an office insurance leaves. 

With years adding up to your age, sooner or later you or your dependents might have to go to a hospital if you haven’t (harsh reality). If you have, you know the kind of expenses well. Room rents, in-patient treatment, pre and post hospitalization charges and the medicines or injection, it can be daunting. A health top up can help you cater for all these. It works like a stepony to your existing health insurance plan; to help you out in times of need.

GETTING OUT OF AND STAYING OUT OF A DEBT TRAP

Last, we spoke of debt traps and how easy it is to fall into one – easy EMI options flashing across e-commerce platforms, personal loans available and of course the credit card and its unpaid bills. Today, let’s talk about how to get out of and more importantly stay out of debt traps.

If dealt with systematically, you’ll be able to get out of a debt trap sooner than you think! You don’t have to be the one to live paycheck to paycheck with unpaid loans, EMIs and bills hanging like a nook from your neck.

Here are some easy to follow suggestions that can prove handy when you feel trapped under debts:

LIST YOUR DEBTS

First thing first, list down all the debts so that you clearly understand the trouble and the depth of it. The details should include the kind of loan – EMI on car loan, home loan, personal loan or credit card bills along with principal amount borrowed, rate of interest, installment amount and number of years left. This will help you prioritize which one to focus on, which is also our next step.

PRIORITIZE THE DEBTS

Once the above list is ready, identify the most expensive debts – a large principal amount and higher interest rate. For example, a credit card bill is expected to have a very high interest rate compared to personal loan, car loan or education loan. You need to clear the biggest rock first. Even if it means refinancing, i.e., taking another loan with a lower interest rate.

THE DEBT PAYOFF PLAN

As a next step, you need a plan. A plan that can help you pay off the loan. You could either try consolidating all the loans and have one singular loan instead. You may check with your bank for this, as some banks provide such an option to let you have a single EMI instead of several. Or you can look into your existing investments that are yielding really low returns and are not ear-marked for any financial goals. Use those idle investments to pay off your loan.

You can also figure out an extra means of income (even if temporary) just to pay off the loans. As the years go by, there will be increase in income, some bonuses, investment income or even a matured FD. Use these to pre-pay your loan and get off the debt earlier.

PS. – If you have too many loans looming over your head then commit all your surplus income towards paying off these loans instead of investing the money. Take this decision only when you have consulted a certified financial advisor.

REFRAIN USE OF CREDIT CARDS

The moment you decide to use the credit card, it is an indication that you’re going beyond your pocket. Unless unavoidable, refrain from using credit cards. They have the maximum interest, options like paying minimum amount due seem lucrative at first but come back with interest rates as high as 40% when free credit period is over. Not only the purchases but such high rate is applied on outstanding amount too. Making you fall into a trap difficult to get out of.

AVOID ADDITONAL LOANS

Ideally, all loan amount combined shouldn’t be more than 40% of your total income. However, if you feel you’re in a debt trap, then most likely you’ve crossed the 40% limit that are straining your finances anyway. With uncertain times ahead, it is pertinent to not take any additional amounts and instead put all efforts towards easing off the existing ones.

It might seem extremely difficult to get out of a debt situation but all you need to do is believe there’s a way out, figure the way out and then stick to your debt pay off plan till you get out of it. If it’s too overwhelming for you to sit down and do this analysis on your own, drop us your details here http://www.slafinancialsolutions.com/contact.php#contactus and we’ll help you chalk out a plan for FREE.

How to know if you’re falling into a debt trap?

In today’s world, debts are unavoidable. Loan or credit facilities assist you to buy things you need and enable you to pay as you earn. As good as it sounds, this anticipated help becomes a big trouble when handled irresponsibly. It has even become the cause of businesses or individuals going bankrupt or falling into the never ending debt cycle.

Are you heading towards a debt trap?

An overdue credit card payment, a missed EMI, a sudden need to take a personal loan to pay off another loan are often the first signs of falling into a debt trap that most of us ignore thinking “Oh, I’ll handle it as I will have money soon”. Unfortunately, its these debts and their missed payments that become a problem later.

So here are the 5 things that you need to keep a tap on to ensure you’re not falling into the debt trap before it’s too late-:

Easy EMI may not be so easy after all

It does seem tempting to buy products on 0% EMI. It also seems fine to pay Rs. 2,000-5,000 a month spread over 6-12 months instead of a lump sum amount immediately. Now if we add 3-4 such ‘easy’ EMIs in a month; does it look easy anymore?

According to a survey by ET Wealth, 15% of the respondents, had an EMI outgo of more than 50%. If your EMIs are eating up 40-50% of your salary, right there is your warning sign.

Personal Loans

So many of us end up taking a personal loan to cover for big expenditures like taking exotic vacations, funding education abroad, big fat weddings etc; expenses that could have been paid for through our savings too. While it’s easy to get a personal loan when we need if we have a recurring income; but what we ignore is the high interest rate on personal loans that eats away our recurring income later.

Keep personal loan as last choice and only if there’s an actual emergency that you cannot handle otherwise.  

Loan to clear a loan

It might seem luring to get a loan to pay off a previous loan; an option that a lot of banks offer. But what people forget it that you will have to pay off that loan someday. So if you’re doing so just to buy some more time to pay off the loan; you’re entering into a clear debt trap and that too a cyclic one.

If you want to pay off a loan, use you low return investments to pay off rather get it refinanced often.

Misusing Credit Cards

Credit card is the worst form of debt because when you’re assuming the debt, you don’t even realise you have assumed it. On swiping a credit card the amount does not gets debited immediately and hence we don’t realise until the end of the month how much we’ve spent/ overspent.

Remember with credit cards, the amount to be paid gets delayed but you still have to pay it. So use it wisely. If you get shocked at the month end to see your credit card expenses; it’s time for you to say goodbye to your credit cards. 

Unpaid credit card bills

While having a credit card in the first place can create problems, non-payment of credit card bills can worsen the situation. Delay in the credit card payments beyond the due date attracts interest which is as high as 24%-36%.

Not just this, it brings down your CIBIL score making it more difficult to get loans in future for more legitimate things like house or car or emergencies. And paying minimum amount due doesn’t help in the long run because the interest cycle does not stop.

Thus, don’t miss your credit card payments no matter what it is.

When borrowing money, it is important to know how you will return it. Debt-taking plan should also include the debt-returning plan that is logical and doable. Look out for early signs from above and set a fixed date to close all debts and make your best effort to stick to it. Debts are meant to help and should be kept that way. Don’t let it become a noose around your neck.

3 MUST – DOS FOR UNPRECEDENTED TIMES LIKE THESE

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As the country progresses into Unlocking phase, the word everywhere is we must learn to live with the virus and be future ready for such global adversities.

The second worst affected, after human lives, by Corona Virus, is the economy of all the countries with affected citizens. And if we were to go by what experts have to say, there could be more such global crisis in future. So how do we get ready for such adversity?

STAY DISTANT STAY SAFE

True there are relaxations in place, but only as an attempt to get ready for the life ahead one step at a time. Unlock doesn’t mean all is well and back to how it was. Unlock is only to get us ready to adopt new ways of living – safe and more hygienic.

The 1918 pandemic more commonly called the Spanish Flu’s second wave, has a lot to teach us here. It was worse than the first and so could be the case this time. Virus mutations are unpredictable and till we have a well-tested vaccine available, it’s wiser to be preventive in whatever we do.

SCALE BACK ON YOUR SPENDINGS

According to Economic Times article of May 13, 27 million youth in the age bracket of 20-30 years lost jobs in April 2020. It also goes on to add 33 million men and women in their 30s lost jobs as well.

Financial Express predicted, 74% small businesses, start-ups will either shut down or marginally scale down in the next few months as an aftermath of the pandemic.

If these figures tell you anything, there’s going to be a severe financial crunch everywhere. Create back-ups, review your savings and expenditures to better fit into the new lifestyle both personal and professional.

GET WELL INSURED

Businesses can be rebuilt, jobs can be reinstated or found new. But one area where we become helpless is the health – ours and of those close to us.

Though corona virus has taken a front seat in our lives right now, there are several other factors in play that are detrimental to our health, whether it is diseases like cardiac arrests or cancer or even flu and fatal accidents. With finances already dwindling, health care expenses would be a burden that would be difficult to shoulder. While we cannot predict or avert such problems, what we can do is have an insurance cover to support us and our families when faced with such adversity.

Let’s get our future days pandemic ready!