Managing your Finances article series: Part 1: The Preparation.
Before starting the journey of Financial Freedom or even improving our finances, we should be prepared by assessing our current financial situation to avoid bumps during our journey. Think of this preparation as collecting all the ingredients and tools required before we start making any dish.
In my opinion, financial preparation requires the following key ingredients/fixes in no particular order
Fix the holes
Now, what do I mean by fix the holes, there could be some shitty insurance policy that you might have purchased where the agent has lured you in by promising great returns but when you actually calculated the returns are terrible and even though they call it and insurance, it’s kind of a Ponzi Scheme where you are losing money and even the returns that you could have made by investing that money in stocks or other investment Aids.
The first step towards fixing your personal finance is fixing such holes that are taking money from you but providing you terrible returns.
The hard part of this step is most of the insurance companies make you visit their office if you want to cancel such policies and ask for a bunch of paperwork to make the process as difficult and frustrating as possible.
Apart from such policies, look for the auto-pay enabled in your bank accounts, maybe it’s some subscription to a service that you are not using or it could be anything. Spend some time to find all such holes and fix those holes to avoid losing your hard-earned money.
Prepare for the worst
Life is unpredictable, there could be some medical emergency, or if your entire family is dependent on you and goodness forbid something happens to you then who’s going to take care of your family?
We should be prepared for such scenarios to avoid losing our savings behind such incidents and for that we need
- A Medical Insurance
- A Term Plan
The medical insurance policy can be taken for your entire family but while buying such policies, just do your own research on claim settlements by the insurance companies and the disease covered by the policies, and read all the paperwork and conditions before buying the policy.
The same goes for the term plan, do your own research on the insurance company and claim settlements and different conditions where the company can deny the claim.
Get the emergency fund sorted
You fixed all the holes and you are prepared but there could be some incidents that can not be covered by insurance like say if any home appliance broke down and you have to buy a new one or you lost your job, the bills are not going to stop if you lose your job and we should be prepared for this with some handy money that can be withdrawn easily.
The emergency fund can be in form of Liquid funds, money lying in your Savings Account, or Fixed Deposits with your bank (my personal favorite is Liquid Funds).
The emergency fund will take care of the bills or any unforeseen incident so that you are not burning your savings.
After following all the guidelines mentioned above, we are ready to start our journey toward Financial Freedom or better financial health.
That was part 1 of the series, you may now continue with part 2 of this series.