THE PATHWAY TO FINANCIAL FREEDOM LIES IN INCOME PLANNING

We are living in challenging and uncertain times, Over the past seven months, nearly every country across the globe has been fighting a rigorous battle to reduce the spread of the COVID-19 virus and its effects on health, society and the economy. As we slowly edge towards a post-pandemic world, prioritising ours and our family’s health has taken precedence. That includes having a financial plan which acts as the fundamental foundation in the event that we or any of our family members become ill. 

However, a recent survey by Nielsen highlights that urban Indians are investing less and saving more, allocating 59% of their annual income to current expenses. Since job losses are expected to be the severest impact of the pandemic, there has never been a greater emergency to take a critical look at income planning for a secure future. The easiest way to reevaluate your financial portfolio is by looking at it from the lens of 3 elements - savings, wealth creation and protection.

Savings: 

With the market in a volatile state, it is advisable to allocate 10 -15% of your monthly income towards personal savings and savings products. In this regard, life insurance and fixed deposits have served as the primary options for may Indians throughout the years. These categories are ideal for steady wealth accumulation, earnings and reliability, irrespective of the market dynamics. As the world battles with the effects of the pandemic, these facilities have become quite an attractive option for long-term savings. As a safety cushion, 6-month income should cover emergency expenses in case of an unforeseen event such as an accident, family issue or job loss. 

Whatever you do, try not to liquidate all your assets. In case you are hard-pressed for finances, first look at liquidating assets like an FD. Unless it is a matter of urgency, do not dip into funds that ensure your child’s future or your retirement or you stand to risk your long-term aspirations.

Wealth creation: 

Investment portfolios need to be reassessed at this time. Investments must be spread across diverse asset classes with a keen eye on market movements. This is essential to ensure the mitigation of risk and the preservation of wealth that has been created over time. Global economic conditions have a direct impact on various asset classes such as – debt, real estate and private equity. For example, the business of real estate has only saturated further with the advent of the pandemic. With people reevaluating their investments, the future for this sector is still uncertain. Similarly, SIPS have not held their ground in a volatile market, while debt instruments have withstood the test of time. 

In this new normal, it becomes imperative to evaluate the market continuously and make investments that ensure long term success and longevity. Simple measures like moving your assets from high-risk to low-risk ones can make a world of difference. Similarly, it is also essential to relook at the sectors you are invested In, to ensure your investments are not hurt in the long term. 

Protection:

An often-overlooked aspect of income planning is ensuring you and your loved ones are adequately protected. Without insurance, be it a term or critical illness, you are vastly exposed to financial impact. A week in hospital can wipe out your savings, that you have painstakingly built over the year. As important as investment and wealth accumulation is, ensuring that it is unaffected during emergent situations is equally critical. So, if you do not have a life or critical illness cover, evaluate your options and insure yourself. 

In conclusion: 

The one thing that the pandemic has brought to light is the uncertainty of life. While you might be tempted to put income planning on hold and worry about the immediate future, it is essential that you look at your life over a 30-40-year horizon. A robust financial plan is a must if one hopes to come out of this pandemic unscathed.s