Q-Sir, I am a management trainee in a public sector undertaking. I am hoping to be hired permanent by the end of this year. My father is a big time follower of your column. Sir, I would like to know how to start my financial life. What is the first thing I should be doing? Also, I have always dreamt of buying a flat. Please advise.
-L. Achumi, Gurgaon NCR
A- Firstly, my heartiest congratulations to you. It’s good that young and savvy people like you are coming with questions on financial life. There are certain things that you should keep in mind as soon as you start your career – things that would help to make your financial life simpler.
• Apply for a PAN card
Most earning people have to file an income tax return (ITR), and the Permanent Account Number (PAN) is very essential for the same. The PAN is a unique number assigned to you by the department of income tax, and is mandatory for filing tax returns. But it is also becoming increasingly necessary for most medium-to-large transactions – like purchase of a car, a house, buying insurance etc.
• Purchase adequate life insurance
Now that you have started earning, take a moment and see if there is anyone dependent on you, financially. Are you paying your parents’ rent? Is your brother/sister’s education your responsibility? Are you financially responsible for taking care of your siblings’ marriage?
If yes, and I repeat, if only yes, you’ll need an insurance – it would provide a financial support in case of unforeseen incidence to your dependents (for example, if you meet an untimely death etc). So purchase life insurance as soon as possible. And remember to buy only term insurance and preferably an online one – stay away from fancy things like Unit Linked Insurance Plans (ULIP), etc.
• Start Systematic Investment Plans in a good Mutual Fund scheme
You are young, and to reach your financial goal would take some time.. So, while you have time by your side: why not start investing now, and gain from the power of compounding? Even small amounts saved regularly can provide you with a huge corpus later – provided you start investing early.
And there is no better way to invest for the long term than investing in equities! So start Systematic Investment Plan (SIPs) in a few good MF schemes right away, and start investing in a disciplined way.
• Open a Public Provident Fund (PPF) account
When you have just starting your career, and retirement is the last thing on your mind. But it doesn’t hurt to plan a little in advance, right?
So, apart from starting the SIPs for your long-term goals, also open a PPF account and invest in it regularly.
The PPF is risk-free (it is backed by the Government of India), it is absolutely tax free, and moreover, it also provides you income tax benefits under Section 80C!
• Save for the down payment of your house
Of course, to buy your dream home, you would take a home loan. But a home loan is available only for 80-85 percent of the cost. You need to pay the remaining 15-20 percent as the down payment. And this can – and would – be a large sum!
So, why not start saving for it soon? Put some money aside specifically for this every month.
Invest it depending on when you want to buy the house. Keep some money aside specially for this purpose every month in bank FDs / debt funds if you would want to buy the house soon, or put it in an equity MF through SIPs if the purchase is a few years away.
Q- I have health insurance, which is up for renewal in the next ten days. I want to know if I can choose another health insurance policy. Also, our agent says that under the new mediclaim policy one has to inform the insurance company within 24 hours of hospitalization. Could you throw some light on this?
-Robert Lotha, Bangalore
A-You should renew your health insurance policies without any delay. The time period is too short for you to port your existing insurance to an alternate insurer. Without porting, the exclusion period for pre-existing diseases will start afresh in a new insurance and this is not advisable.
Your agent is giving you the correct advice on claim intimation period. You should ideally inform the insurer before hospitalization in planned situations and within 24 hours of hospitalization in a medical emergency. This information could be sent through an email or phone call to the customer helpdesk. Most hospitals have an insurance helpdesk, to assist one with the intimation.
The writer is the Principal Financial Planner at EconPenny. You can chat-twit-mail him at facebook@dipankar.jakharia | twitter@d_jakharia | dipankar.jakharia@gmail.com
