How to be Financially Secure

Here’s a thought. When you find some time over the weekend, take a moment to think about your financial security. Ask yourself these 3 pertinent questions, without any biases:

1. How am I doing in my current earning capacity?
2. How long can I continue to earn at this or at a higher level?
3. What can I do to secure this income?

Financial Security - so few of us understand what it truly means

True financial security is to ensure sufficiency over time. And yet, many of us, (including me) struggle to acknowledge the uncertainty of future income.

You might have worked hard for decades to reach where you are. Or you could be a young star, already earning in your 20s or 30s what your peers would earn 10 years later. 

Right now, your current income feels more than sufficient. It even allows you some indulgence now and then. A little luxury shopping, anyone?

Living it up comes easy when there's more cash in the bank than you really need every month. Here’s the thing. You need to acknowledge that it will not last forever. 

The good news is that you can ensure long term financial security. You can continue to enjoy the kind of lifestyle you’re used to, without major compromises. You can provide for your family when your earnings take a dip (and they will, like it or not) without any risk.

The bad news?

The longer you postpone, the less you save. 

At this point, most people ask me:

‘But where can I safely save?’

An obvious risk-free option is to invest in bank fixed deposits or recurring deposits during your “career peak” for later utilization. Unfortunately, the returns on these options don’t keep up with the rising rate of inflation.

There are many insurance & investment policies (a.k.a endowment policies) available which can come in handy for savings, while also reducing the risk for your family.

These are variously called Life+Investment Plans, Pension Plans, Wealth Accumulation Plans, Guaranteed Income Plans or simply, Savings Insurance Plans. 

These insurance plans are similar to recurring deposits. They discipline you into saving for your future. But you also get life insurance from the day you start saving. 

How does it work?

Typically, you pay a fixed premium from 5 to 12 years. Then there’s a cooling off or deferment period. After which you start getting payouts in whichever cadence you choose (monthly, quarterly or annual payouts). Insurers can spread the payout over the next 25 years and even up to 99 years of age.

Even after accounting for inflation, these plans will give you a decent assured income when you won’t have any other source. In case of an eventuality, your nominees continue to get the payouts in addition to the sum insured of your policy. That's the best kind of financial security you could provide for your family. Think about that for a moment. 

What about today?

For those looking for instant gratification (who isn’t?) the premium you pay reduces your tax liability too. The ultimate rate of return is typically better than the rate of return on your tax saver fixed deposits. Granted, it doesn’t sound too great on paper. And while you can definitely invest in financial products with higher returns, you won’t get the kind of safety net that insurance provides, in addition to the guaranteed, lifelong income.

Those with higher risk appetite can consider investing in mutual funds. But then you also need to be ready for market fluctuations. Imagine being caught in a bear market when it’s time for you to encash your funds. A sustained market downturn can seriously impact years of savings if most of it happens to be in mutual funds.

Bottom line

Insurance savings plans, just like fixed deposits, will guarantee payouts and keep your savings insulated from the fickleness of the market. 

So, dear well-paid employees and thriving business owners, pay attention. If you’re earning well right now, start saving for your financial security. The best time to start was yesterday. But today's not bad either.

Drop me a message if you need help with planning your insurance or just need some personal finance advice. Our team of insurance advisors will be happy to help.