The
three major risks involved in personal financial planning for salaried
professionals can be categorized under 3 broad areas:
1. Personal life
2. Loss of income
3. Inflation
Let us look at what each category means.
PERSONAL RISK
This is a broad category, which includes the risk of
falling ill or any other health issues. Personal risk also includes the threats
associated with the people in our life about whom we care or are responsible
for. There are many kinds of safety issues associated with our personal life.
The best way to protect ourselves against personal risk is insurance (health
insurance, fire insurance for the house, vehicle insurance and most importantly
life insurance). Nowadays there are very niche insurance policies available
like wedding insurance.
INCOME LOSS RISK
Although we would always like to believe that our
jobs are forever, it may not always be the story. Companies which are stable
could close overnight. We may be forced to quit our job at anytime due to
personal reasons. The best way to protect against income loss risk is to have
at least 6-8 months' salary as cash balance in a savings bank account. At the
same time keep honing your skills so that you can immediately get jobs if the
need arises.
INFLATION RISK
The best way is to set goals for high cost purchases
and keep a track of the prices continuously. If at a point you realize that the
prices may jump and also have enough cash accumulated, buy it. Small value
purchases and regularly used stuff cannot be protected against. You cannot buy
100 kg of onions and store just because someone said onion prices are going up.
Stocking up is a good way to protect against inflation risk, provided the items
can be stored for long time. Many families buy a year's quota of pulses,
cereals etc to protect against monthly price fluctuations.
source:
bankbazaar.com
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