Your Top 3 Financial Responsibilities

At whatever age you are, if you have dependents, these 3 responsibilities have to be fulfilled by you to ensure stress-free living for you and your family and also to build a foundation for wealth creation.

  1. Having an Emergency Fund: Have at least 3 months’ pre-tax gross income worth of money ready for any emergencies that you might face. I call it the “Life Happens” Fund. This is because Life can throw various challenges at you & sometimes they may come to you all at once. To name a few, Car breakdowns, Home repairs, Unexpected liabilities, Medical emergencies , you losing your job, etc. At such times , if you have your Fund ready, then the Stress , Trauma & Sleepless nights get converted into mere inconveniences that can be managed by this Fund. On the other hand, if you don’t have this you may then have to withdraw money from your investments which will hamper your wealth-building plans. The other option available with you is Swiping your card , probably converting the spends in EMIs & getting into debt for Liabilities! Yikes! Sure shot path to perpetually living in that Broke Feeling . So if you don’t have an emergency Fund , start building it steadily. Add small amounts to it every month, till it reaches the goal amount. You may build it in 3 months..6 months..1 year..1.5 years . Building this Fund , should be your first goal even before Investing for wealth building.
  2. Having a Term Plan: If you do not have a Term Plan, you are jeopardising the wellbeing of your dependents/family in case , god forbid, you cease being around. No, this is NOT an endowment plan, ULIP or some shady “INVESTMENT+INSURANCE + RETURNS” products that Banks & MF companies try and hardsell to you..I am talking about  a plain and  simple Term Insurance Plan. You pay a low premium to get a very high Life cover. If something bad happens to you , your family would get that huge sum assured , which if deposited in the Bank , will give your family a monthly income to keep their lives going on comfortably without any Financial Stress. Typically our sum assured should be 15-20 times of the Annual Salary or ideally higher .
    Let’s take an example: Say Chironjilal Khosla ( Cherry ) has an income of 60000 per month with his wife & parents dependent on him.

    • Income per month 60000 60000 60000
      Income per annum 720000 720000 720000
      Sum Assured as a
      multiple of Income
      10 times 15 times 20 times
      Sum Assured in
      the Term Insurance 
      7200000 10800000 14400000
      Yearly interest from
      FD of the sum assured
      432000 648000 864000
      Post tax money for your family annually  345600 518400 691200

      As you can see, only in the 20x sum assured, the money comes somewhat close to managing the income to maintain the same lifestyle for your family, in your absence

    • On the other hand Banks may entice you with Endowment plans where you pay high premium amount, get substandard returns that usually don’t even beat inflation and offer useless amounts of Sum assured like in above example may be sum assured of 20 lacs ..What is your family going to do with 20 lacs or even 25 or 30 or 40 lacs for that matter.. It is not going to suffice for their wellbeing.
  3. Having a huge Health Insurance: Don’t cut corners here. Buy a good comprehensive health plan for your family. Today ( November 2019) , having a Family health cover of 2-3-4-5 lacs is not going to suffice. Even the most minor surgeries at a decent hospital may cost 2-3 lacs and more complicated ailments can result in an expense of 10-20-30 lacs.  So you’re taking a huge financial risk for your family by not taking adequate comprehensive Insurance cover.

The above 3 steps are not easy. Takes a lot of effort , letting go of your wants for a while,  dedication & consistency to get these 3 in place. But you’re major sorted taking care of your family’s well being,  once these 3 are up & running.

The above 3 Pillars may be seen as a Foundation for your wealth-building journey. Once you have these 3 in place, you will never need to halt/alter/break/withdraw from your investments abruptly which would otherwise be a huge setback in wealth creation.

Happy to answer any queries. Would love to be of help in any way. Feel free to share thoughts or queries on dadsokool@gmail.com or in the comments below.

Cheers!
Bhushan Danani
DadsoKool
Fearless, Committed, Evolved & Involved

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