Everyone needs to be financially strong in today’s world. For this financial planning is significant. It helps you manage money, foresee the future well enough, and keep your family safe. Most people do not know how and where to start. For any financial plan to be good, there are five key steps for one to engage in, and the very first is buying term life insurance. Let’s learn these five steps in financial planning and why term life insurance is so crucial.
Step 1: Buy Term Life Insurance
Life is very unpredictable. If one helps provide a good hand in earning bread for his family and something happens to him, it creates lots of struggle for other members of his family. All the financial responsibilities he was carrying fell suddenly to other members. This is why buying term life insurance comes first. Term insurance provides initial financial support to the beneficiaries after one’s death.
What is Term Life Insurance?
Term life insurances have a fixed insurance period. That is the reason they are called “Term Life Insurance”. The fixed period normally expands across 10, 20 or 30 years. If a person dies during the insured period, the beneficiaries get the insured amount which provides good financial support.
Why Term Life Insurance?
Financial Protection-When you are an earning member, your sudden demise will cause more financial problems that will lead to chaos in the family. But life insurance allows replacing your source of income which will make it possible for your family to live an easy life at least.
- Very Low Premium-The term life cover is very pocket-friendly as compared to other covers.
- Covers Major Expenses– It can be used to pay for everyday expenses, education charges, bills and funeral costs.
- Peace of Mind – Knowing that your family is financially secure will give you a chance to target other goals without the stress.
Step 2: Create an Emergency Fund
Situations like medical emergencies, car repair or job loss do not come after informing you. To deal with this an emergency fund will get you spinal back support. Without an emergency fund, you may have to take loans or use credit cards, potentially resulting in debt.
How Much Will You Save?
It is suggested to have savings equal to 3 to 6 months of one’s living expenses. These savings should be easily accessible via a bank account.
Why Do You Need an Emergency Fund?
- Prepares You for Emergencies – Unexpected expenses can come at any time.
- Avoids Debt – No need to borrow money in an emergency.
- Gives Peace of Mind – Knowing that you have your savings reduces some stress and the ability to focus on some long-term plans.
Step 3: Pay Off Debt
Debt may slow some of your speedy financial progress. High-interest types, like credit cards, should be settled first.
How Do You Pay off Debt?
- List All Your Debts – Make sure you enumerate all of your debt, loan, credit card, and more.
- Prioritize-High-Interest Debt – To begin with, focus on the most interest debts by paying debts that cost the most money by their interest rate.
- Make Extra Payments – You might be paying more than the minimum, and therefore, you pay off those debts faster than others.
- Do Not Acquire New Debt – Take loans only if you are forced to, not for impulse purchases.
Why is Paying Off Debt Important?
- Saves Money – Early closure of loan, less interest payment
- Improves Credit Score – Improved credit score, helps applying for new loans or a mortgage in the future.
- Reduces Stress – Stress-free life, financial freedom.
Step 4: Invest for the Future
Following getting insurance, generating an emergency fund, and paying off debts, one invests. Investing allows you to grow your money over time and gets you ready for long-term objectives, perhaps the ultimate act is buying a house, putting your child through college, or retiring.
Where to Invest?
- Stock Market – Investing in the share market could be a good option, it helps you to build wealth over the time of period.
- Mutual Funds – Pooled funds from several investors, managed by professional experts, strategically invested in equity, bonds, etc.
- Retirement Accounts – Contributing to a retirement plan such as Employees Provident fund (EPF), National Pension Scheme (NPS)
- REAL ESTATE – Build wealth over time.
WHY IS INVESTING IMPORTANT?
- Beats Inflation – Money in the bank does not grow fast enough to beat inflation. An investment increases the value of your money.
- Creates Wealth – The earlier you begin the more you’ll have in return over time.
- Secured Retirement – Investments give you the surety of having enough money for a comfortable life post your retirement.
Step 5: Plan for Retirement
Prioritize financial planning about the step of retirement planning. You should start saving for retirement as early as you can.
How to Plan for Retirement?
- Using your employer take advantage of sponsored Retirement Plans such as EPF or NPS.
- Set a Goal– Decide how much money you need for retirement.
- Save Regularly– Contribute a fixed amount to your retirement savings every month.
- Review the plan: Track the retirement saving plans and ensure a review whenever they need to be there.
Why is Retirement Planning Important?
Retirees can still have their favourite way of living since there’s no financial fear
- Medical Exploits preparation : Retirees might need considerable sums for health care once in old age and thus require one to build his savings with time.
- Gives You Independence – You won’t have to rely on others when it comes to money.
Conclusion
Hope you’re now aware what is Financial planning. It is the way forward to a safe future. The five important steps are:
- Buy Term Life Insurance – To cover your family’s future financially, of course.
- Build an Emergency Fund – In case there are unforeseen expenses.
- Pay Off Debt – Save yourself from the weight of too much debt.
- Invest for the Future – Grow your wealth.
- Plan for Retirement – Enjoy retirement with no worries.
First of all, you should buy term life insurance so that your family will not face financial constraints. After acquiring that life cover, saving, investing, and preparing a bright future for your finances would be easier. So, start now and exercise control over your finances!
