From healthcare expenses to saving on cost on debt, here are five start moves for working couples scale up savings
Dual income has turned almost an essential for ensuring financial stability in any family to cope with escalating prices of commodities and rising aspiration. In step, financial planning has become more and more important to balance the income and expenditure, while making room for savings and investment.
There can be a host of avenues to draw up an efficient financial blueprint. Here are five most crucial money moves that would help working couples set up a more robust financial future for themselves and the family.
1. Be Prepared for Financial Emergency
The first step towards a strong financial base for any family is to create an adequate emergency fund for dealing with any kind of fiscal exigency such as loss of income due to unemployment, severe illness or disability, urgent repairing of house and so on. Ideally, an emergency fund should cover the unavoidable expenses like existing EMIs, rent, insurance premiums and children’s tuition fees for at least six months.
The working partners should park their emergency funds in high-yield savings accounts. This would allow them instant access to the fund. Those comfortable with internet or mobile banking can park their emergency fund in high-yield FDs with scheduled banks.
2. Invest in Health Insurance
Many people make the mistake depending solely on the group health insurance covers provided by their employers. The insurance covers in such policies are often inadequate to meet the rising healthcare expenses. Moreover, these policies lapse once you change your employer or you suffer a job loss. Such a situation leaves you without any health cover.
It is pertinent for every individual to have adequate health insurance cover for herself as well as for her family members. In case of working couples, the health cover should be more robust even if they have their insurance provided by respective employers.
3. Buy Term Insurance Policies
The basic objective of buying a life insurance policy is to provide a replacement income to the family in case of the insurer’s untimely death. Such replacement income helps a family deal with funds crunch triggered by the loss of an earning member. The size of such life covers should ideally be 10-15 times one’s annual income. The most cost-effective way of buying such large life covers is to buy term insurance policies. These policies would buy you large life cover at a fraction of the premiums charged for other life insurance products, such as ULIP, endowment policies and money-back policies. Both the working partners must buy separate term insurance covers of at least 15 times of their annual incomes.
4. Start Investing Early
Many young working couples tend to procrastinate while investing for long-term financial goals like child’s higher education, child’s marriage and their own post-retirement corpus. They usually tend to prioritise immediate lifestyle goals like buying a dream car or saving for their vacations. What they miss is that the more they procrastinate, the higher would be their chances of not accumulating enough wealth for the time when their income flow to cease. Else, they would have to make much higher contributions with increasing age that can put their lifestyle under strain and risk other financial goals in the later phases of their working life.
If a couple, right after their marriage, begins investing Rs 5,000 every month at an assumed annualised rate of 12 per cent, they would be able to build a retirement corpus of Rs 1.75 crore after 30 years. But if they start investing after 20 years of their marriage, they would require to invest Rs 76,000 a month to build the same corpus at the same rate of return within the same time. Working couples, therefore, must consider investing as early as possible in equity mutual funds for their long-term financial goals as equity as an asset class beat both inflation and fixed income investment instruments by a wide margin over the long term.
SIP is the best option for such investments as automatic and regular deduction would instill financial discipline in them and avoid the perils of market timing by ensuring rupee cost averaging during market corrections.
5. Consolidate Your Debt
Increased credit access and higher repayment capacity lure many couples into one after another borrowing at higher interest rates to finance their lifestyle spends. This can leave them with very little funds to meet their long-term financial goals. Such couples can reduce their interest burden by consolidating their existing loans into just one or two loans at lower interest rates for a longer repayment tenure. Couples having existing home loans can opt for debt consolidation by availing top-up home loans. As the interest rates of top-up home loans are usually the same or a bit higher than their underlying home loans, top-up home loans are usually the cheapest credit option for existing home loan borrowers. The rest can opt for personal loans to consolidate their existing high-cost debts.
The author is Chief Product Officer of Paisabazaar.com
DISCLAIMER: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.