How to plan your finances

Till date, I have been unable to save due to lack of knowledge and commitment. Now that my responsibilities are growing, I feel the need to save as much as I can. 

What's more, I also have to provide for my sister's marriage next year and may have to take a loan of Rs 2,00,000 towards this end.

I have Rs 1,00,000 with which I plan to buy a plot of land.

My wife and I are medically insured for Rs 2,00,000. I am sure my wife's pregnancy expenses will be covered by this policy.

The money in my saving's account is Rs 1,00,000.

My total monthly household expenses come to around to Rs 10,000.

Considering all the above, here are my questions.

1. Which insurance policy should I buy?
2. Should I invest in shares?
3. What about PPF and NSC?

- Inder Singh

Hi Inder!

Your medical cover is very unlikely to cover your wife's pregnancy. Please double check with your agent.

Read: What you need to know about Mediclaim

What insurance cover must you buy?

Insurance comes in many forms - life insurance, disability insurance, home insurance and medical insurance to name a few.

When you take an insurance cover, you have to pay a cost which is the premium.

There are two suggestions here.
Firstly, as far as life insurance goes, stick to simple term covers. Buy a unit linked product or any other life insurance product only if you understand the product and it's implications properly.

Secondly, it might be worth your while to take advice from a competent professional. Don't just go by what your insurance advisor says.

Read: What your insurance agent won't tell you

Should you invest in shares?

Equity is a good investment. But you need to understand the risks associated with it.

If you are not confident about your abilities, you could attend courses conducted by recognised institutions such as the Bombay Stock Exchange and National Stock Exchange. A simple rule for your equity investment could be to use diversified equity mutual funds and invest money with a time horizon of seven to 10 years.

You could consider investing some money in the Public Provident Fund since its returns as on date are quite good. However, the account needs to be opened for a 15 year period and that's a fairly long period for a debt investment. Currently you get a nice 8% tax free return on PPF and you can deduct your entire investment, subject to limits, under Section 80C.

Always remember to look at investments in tax saving investments in terms of post tax returns. Often, post-tax returns of debt investments will still be lower than what may be expected out equity investments.

Overall, you are likely to need investments in both, debt and equity. You will also need a detailed analysis of your financial situation and circumstances to decide how much insurance you need and how you need to save and invest. For all this your best bet could be a trusted financial advisor.

Read: PPF vs NSC

Illustration: Dominic Xavier

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