For a salaried person, it is best to adhere to US Senator Elizabeth Warren’s – 50 / 30 /20 rule of personal finance.
- 50% should be allocated towards essential expenses like Utility bills, EMIs, Grocery bills, etc.
- 30% should go towards your lifestyle expenses like Entertainment, Shopping for fancy clothes or gadgets, etc.
- 20% which remains is your Savings. But only savings is not enough. Those savings should transition to investments, only then can you achieve your goals.
Do not start thinking if 20% will be enough at this point. It is needed to get you into the saving game. It will only increase as we move ahead in life.
Insurance and Investment Should be Different
There is no need for a lot of LIC policies as there are few products that beat inflation. There are 2 insurance covers which a salaried individual should have, these are:
- Term Cover: You can get substantial life coverage with z Term plan as per your requirement at a very reasonable price. This term cover will also help you save tax under section 80C
- Health Cover: Health cover is absolutely essential to help you to deal with any health scares for the entire life. Hence it is advisable to take health coverage as early as possible. Mediclaim can help you save tax under section 80D
Liquidity is the Most Important Factor While Selecting an Investment Vehicle
It’s important to always look for liquidity friendly investments so you can have control over your investments. Complicated products with extended lock-in periods are not advisable.
I would encourage long-term investing as this is the best way to achieve your investment goals but you should have control over your investments. The exception to this rule is tax-savings investments which will have some lock-in period as a mandate.
Lesser Portfolio Actions Lead to Higher Value
This is a must to be able to generate wealth and something every successful investor abides by. It is best to stick with the financial plan when the market is in a volatile period and ride through it.
Equity markets go through these periods of ups and downs and if this bothers you it is best to engage a financial advisor.
Hope this helps!