In the past few years I was always the happy-go-lucky kind of guy. Having being educated from a good institute, I got a job easily and was doing well for myself. Then marriage happened and I learned what responsibility is. Family planning was the next obvious step and now, at 32 years of age, I have a kid and wife to take care of and so, painstaking as it might have been, I learned the basics of financial planning. After all, you need a well-thought-of financial portfolio if you are to plan for your life’s financial goals, don’t you?
Did I stick to the principles of financial planning? Yes, I did the following –
- Created a well-diversified financial portfolio
- Earmarked my investments for specific life goals
- Undertook a long-term approach towards my financial planning
- And I intend to be disciplined in my investments to create an optimal corpus
So, yes, I was disciplined in chalking out my financial portfolio having fed on expert advice and read numerous enlightening articles. But I still missed something which crashed down on my cognizance only when I lost a colleague of mine to sudden death. Though he also had a good financial portfolio chalked out for his life, he failed to create a financial back-up plan for his family. Even I did not have a financial back-up plan for my family and the lack of it got me thinking.
What is a financial back-up plan?
We all make grand plans for our future. Buying a car, cool gadgets, own home, taking a foreign trip, building a corpus for our children education, retirement planning, etc. The list goes on and we also succeed in fulfilling this list. But do we take into consideration any contingency which comes in unannounced and destroys our planning?
A financial back-up plan for the family involves creating a fail-safe contingency plan which would not hamper our financial planning process even if any contingency strikes. This is your Plan B.
Why is a financial back-up plan for the family necessary?
What would happen if our source of income suddenly stops? How would we provide for our family’s lifestyle expenses? Even if such expenses are manageable, what about creating funds for our child’s future? So, you need to have your Emergency Landing Equipment ready…
Even I never factored in the lack of my source of income. This, in turn, never made me vigilant enough to create a financial back-up plan. However, thankfully, I was duly educated and the following points would also educate you and show you the importance of creating a back-up plan:
Death is uncertain
As much as we hate to think about it, anyone can fall victim to the curse of premature death and if the victim is also the sole bread-winner of the family, financial doom becomes inevitable. We all plan for tomorrow but what if we are not able to see that tomorrow? Who will then pick up our financial planning for us? No one. So, it becomes imperative to have a back-up plan ourselves so that our goals are met even if we are not around.
Life however continues
OK, so the bread-winner of the family died? What about his family? Would his children stop going to school? Or would they be deprived of a good future? Who would provide for the daily expenses incurred on maintaining the family’s lifestyle? So many questions, what is the answer? Obviously, a financial back-up plan for the family. If we have a back-up plan in place, our death would never put a dent in the life of our family as envisioned by us.
Just as backing-up of our files is recommended when we operate a computer or a mobile, a financial back-up plan is also recommended when we operate our life.
How to create a financial back-up plan?
Obviously, I registered the need of having a financial back-up plan but was clueless on how to go about doing the same. What about you? Do you know how to create a financial back-up plan?
Thanks to my diligent research (yes I am being boastful here) I managed to crack the back-up plan code. It was quite simple actually now that I look at it in retrospect. It all boiled down to two components of the back-up plan: Primary and Secondary
Once you have tended the primary need, the secondary need requires your attention. If you do not want to take any chances (and believe me when I say you don’t) you should also take the secondary steps for a fool-proof planning. After all, a back-up plan is something which should not be taken lightly, isn’t it?
So, here we go:
The Primary Step
BUY LIFE INSURANCE
Yes, we can sum up the entire first step in two simple words – buying insurance. Even Maslow talks of first “Protection” before any other need. Hence protecting your family is the most important need of a person before everything else.
And by Life Insurance I do not mean the savings oriented endowment plans or the Market-Linked Unit Linked Insurance Plans. By Insurance, the product implied is a ‘Term Plan’.
Have you heard about a Term Insurance Plan? If yes, then is it a part of your financial portfolio? If no, you should hear about it.
When experts tout the importance of an insurance plan, they talk about the quintessential term insurance plan. A term insurance plan is a pure protection oriented plan which provides life insurance coverage at very cheap rates of premiums. The Term Insurance plan promises the payment of a lump sum amount of money in case the insured (the person covered under the plan) dies during the plan tenure.
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