Financial Hygiene: Doing the Boring Stuff ??

People want easy money. People want glory. People want fit bodies. But there’s a huge disconnect between wanting and doing what is required to be done – the boring stuff. In financial freedom, it isn’t any different. People want financial freedom but somehow most basic things – the foundational stuff gets overlooked. In this newsletter, I will cover the boring stuff in personal finance that actually can save you boatloads of money, and save you time and frustration down the line.

The Most Important Thing

Covid-19 has exposed how vulnerable life really is. We all lost a few family members and friends. A few days ago, Rakesh Jhunjhunwala passed away at the young age of 62. RJ was one of the most bullish investors in India who began investing in 1985 with ?5000 and eventually made $5.8 Billion in just under 40 years. I’m talking about death because the most important thing from a financial hygiene point of view is ensuring the financial security of your loved ones when you are gone. To share some stats, about 46% of Americans have a 'will' in place according to Gallup. However, I got only one data point about Indians – according to revenue officials, less than 2% of all documents registered are 'wills'. I’m not sure how this translates into the percent of Indians having a will in place but it seems that we have a big problem at our hands.

Quick question: Do you have a WILL statement for all the people in your family over 30 years old?

Make Your Will Today: According to Investopedia, a WILL is a legally enforceable declaration of how a person wants their property and assets distributed after death. It’s a relatively easy process to follow to get your will done. What is challenging is engaging in a conversation with your partner or parents and getting it done in time. I don’t quite understand the reluctance of many elders to write down the specifics but nonetheless, it needs to be done to avoid heartache and potential court troubles among siblings. Make sure that you get a good lawyer to register your will.

Joint Bank Account Holders: If you have an untimely death, you don’t want your partner to worry about accessing money from banks. It’s likely going to be an emotionally difficult time for everyone so plan for it ahead of time. Among many options, you can make your partner a joint bank account holder to make it easier to access and transfer the money.

Nominations: Another important part of financial hygiene is to make sure you have your partner or children or parents set as a ‘nominee’ for each and every investment or insurance.

Life Insurance: As a bare minimum, all the earning members of the family should have life insurance. Unless you have enough wealth for two generations, you should consider getting life insurance. Don’t look at insurance as an investment vehicle to make returns. You are taking life insurance so that your family can get enough money to live out as many years as possible while meeting the financial obligations. Don’t try to save on insurance premiums. Sit down with your financial advisor and arrive at the exact amount of insurance needed to meet the basic financial goals of the family. Here’s an article that can help you learn everything about Life Insurance in India.

Health Insurance: Most people I know have some sort of health insurance. However, the amount covered in case of an emergency tends to be on the lower end. Post-Covid, prices have gone up so make sure you’ve got the right amount of coverage for your family. Do spend some time understanding the nuances of the health insurance policy based on your family health history and your current lifestyle. Also, make sure it covers disability insurance.

Emergency Fund: I’ve covered this earlier in my newsletters, and I recommend having an emergency fund equal to 12-18 months of your expenses. This amount is kept lying in your bank account. I know a few people will recommend that you can put this amount in liquid investments, but I prefer not to run around liquidating investments when sh*t hits the ceiling.

Action Of The Week

Emergency Fund: What is the exact amount that you plan to have in your emergency fund?

Life Insurance: Did you read this article, and check if you are well covered with life insurance?

Health Insurance: Reach out to a family member or friend who recently had to visit the hospital. Ask them if they had any issues with health insurance and the amount of coverage needed. Then check if you are covered for an unexpected health emergency.

Joint Account & Nominations: Have you added your partner to your bank accounts and nominated her/him in all your investments?

A Moment of Clarity

The boring stuff saves us time, money, and embarrassment. You now know about financial hygiene and the boring stuff that needs to be done.

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“Lazy people do little but want to enjoy much, rely on others for help, or pray for good luck instead of working hard.” ~ Minh Niem

Thanks for reading!

Darshan Doshi