1.Start creating an Emergency Corpus
Having an emergency corpus is a must. This corpus helps us in situations like delay in income, job loss, unexpected medical emergencies, vehicle breakdown, or expenses to cover home repairs.
The Emergency corpus can be created by opening a separate savings account. At least, 10% of your monthly salary should be transferred to that savings account. The total amount saved in the emergency corpus should be at least equal to 6 months of your salary. It is recommended to have the emergency corpus equal to your one year salary.
2. Purchase Health Insurance
Everyone should have a health cover with a minimum sum assured of 10lakhs. Most employers offer health insurance to their employees. It is recommended to take a separate health insurance policy in addition to the one provided by the employer. If the employer provides you health insurance with the sum assured of 5lakhs, get separate health insurance with the sum assured of 5lakhs to cover the minimum sum assured amount of 10lakhs. Health insurance is also known as Medical insurance.
As per Section 80D of the Income-tax Act, a deduction up to Rs.25000 is allowed for health insurance premium paid towards self, Spouse or Children. Incase of premium paid for parents, an additional deduction of Rs.25000 is allowed. If the parents are aged above 60, the additional deduction up to Rs.50000 is allowed.
3. Purchase Term Insurance
Purchase term insurance to provide financial coverage to your family in case of your death. This makes sure that your family does not face any financial struggles after your demise. It is recommended to purchase pure term insurance without any Money Back or Endowment Plans.
As per Section 80C of the Income-tax Act, the amount paid towards life insurance premium is eligible for tax deduction.
4. Set Life Goals
Each of us has a lot of dreams. Set the short and long-term goals that you want to achieve in your life. Start working towards the goal.
5. Start Investing
Follow the rule of “Pay yourself first”. It is recommended to save at least 20% of your salary for achieving your future financial goals. Start investing using debt instruments like Bank Deposits, Post office deposits, PPF or SSY and in equity instruments like Mutual Funds or Stocks. Once you get the paycheck, allocate 10% of your salary to the emergency corpus, 20% to your investment, and start planning your monthly expense budget with the remaining 70% of your salary.