Financial planning is essentially life planning in a strategic way. It allows you to meet your goals and aspirations in the desired timeline and helps you ride out crises and emergencies. Most people tend to focus on only one aspect of financial planning which gives them a false sense of security. For instance, if someone has sufficient insurance cover, they think their job is done even if they have no investments or liquid assets for a rainy day. If you are wondering whether you are ready to ride out a financial crisis, answer the following questions:
- Do you have an emergency fund saved up?
There are a lot of scenarios that nobody expects or wants, such as a pandemic or a job layoff, and yet there is always a possibility of it happening. For such contingencies of life, it’s crucial that you have an emergency fund – an amount of money enough to cover your expenses for at least six months – saved up in a place that is easily accessible. This could be your bank savings account, a fixed deposit, or a liquid fund.
- Do you have insurance coverage?
Accidents, medical emergencies, critical illnesses, and other unfortunate events cannot be prevented by having an insurance policy in place. However, insurance can secure you and your family against the financial ramifications of such events. Hence, look at getting a comprehensive health insurance policy and a life insurance policy for yourself.
- Do you have an investment portfolio?
Investments such as mutual funds can help you in several ways during a financial crisis. First, mutual fund investments help you create wealth which allows you to meet various financial goals. In case of a financial emergency, you can also sell your mutual fund units and access your money easily. There are various types of mutual funds that help with different financial goals. You can look to invest in mutual funds online to start building an investment portfolio that brings you closer to your goals.
- Do you have a second source of income in place?
Having a side hustle is the most common thing today because diversification of your income sources is important. If you only rely on your day job’s salary as your sole source of income, then it’s time you consider your options. Depending on your skills and assets, you can figure out ways to have a second stream of income in place. For instance, if you know a foreign language, you could take online classes or if you have a spare room in your home, you could list it on short-term rental sites for travelers.
Financial resilience is the key to getting through most emergencies. Mapping out a financial plan that covers all the above aspects will take time and will also require you to revisit and adapt to things as they change with time. For instance, the emergency fund you would require in your 20s would be a lot lower than that you’d need in your 30s. Hence, financial planning is an ongoing process.