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Financial Planning Lessons You Learn From Demonetization

IndianMoney.com Research Team | Updated On Thursday, November 24,2016, 10:55 AM

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Financial Planning Lessons You Learn From Demonetization

 

 

 

The Government had scrapped 500 and 1000 rupee notes, effective, November 8th 2016. Sure…. This move by the Government, would have made a mess of your finances….Now, the question is, how do you deal with such a situation? Can you be prepared for something like this? Yes…you can, provided you have a good financial plan.

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Plan for an emergency

Planning for an emergency, should be the first step in financial planning. Many a time you get caught on the wrong foot and don’t have ready cash, for an emergency. This happens because you do not have a financial plan.It is very important to have an emergency fund, which is equivalent to three months worth of living expenses, if you are single.

Your emergency fund should have living expenses, worth 6 months, if you are married. Your emergency fund should be easily accessible at a day’s notice and give better returns, when compared to a savings bank account. You can invest your emergency money, in a fixed deposit or a liquid fund.

Live within your means

Demonetization has taught you to survive, by cutting expenses and learning to save money. If you continue this good habit of saving money in your everyday life, you will be able to save a lot of money and attain financial freedom.The great investor Warren Buffet says, “If you buy things you don't need, you will soon sell things you need.”You should always cut unnecessary expenses and invest that money in a smart way.

Buy health insurance

Today, lifestyle diseases are common, due to a sedentary life style. Hospitalization and medical expenses can be very high, for the treatment of lifestyle diseases, like diabetes and heart ailments. If you don’t have money, you could be forced to compromise on medical treatment.It is very important to have sufficient health insurance, for you and your family.

Pay your taxes, don’t evade them

Tax avoidance is not a crime, tax evasion is a crime. Always pay your taxes, never try to evade them. There are many ways in which you can legally save tax. You have Section 80C deductions and also several tax exemptions, to save on tax.Choose a tax saving instrument, which fits your risk profile.

If you are an aggressive investor, invest in ELSS (Equity Linked Saving Schemes). You get EEE benefits.You get a deduction up to INR 1.5 Lakhs, under Section 80 C. The amount which accumulates and is withdrawn at maturity is tax free. If you are a conservative investor, invest in PPF, NSC or Post office schemes.

Diversify your portfolio

Don’t put all your eggs in a single basket. You should always diversify your investment. Every portfolio should contain both physical assets (real estate) and financial assets.You might invest heavily in Real Estate, which is illiquid. It becomes very difficult to sell land/property in an emergency. This could turn out real bad, especially if you are stuck with the old 500 and 1000 rupee notes and need money in a hurry.

This is why you need to have investments, across asset classes, based on your risk profile.

 

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IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

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