How to ensure financial freedom in pandemic-like situations

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The unpredictability in life was never more pronounced than what it is in the current times. The outbreak of the Covid-19 pandemic has brought the realities of life up front. It can be considered as a wake-up call to ensure things related to money and finances are properly provided for. From maintaining an emergency fund, earmarking funds for long-term goals, keeping adequate risk coverage to having proper nomination, make sure you and your family are financially secure for pandemic situations.

Let us look at some of the key financial aspects and see how they can be bolstered.

Emergency Fund: In order to meet financial exigencies, you need to have some funds kept separately. If there is a medical emergency or a job loss, dipping into existing investments should be avoided. So, it is better to keep an emergency fund of at least 6 months of home expenses. Such funds can be deployed in short-term debt funds or liquid funds for tax-effective returns and easy liquidity.

Adequate health cover: Having adequate health insurance for self and family is the first step towards managing risks. The medical inflation has always been rising above regular inflation and the cost of hospitalization owing to Coronavirus has pushed it further. Buying individual health covers or Family Floater plans along with Critical Illness plans is the need of the hour. For those who already have health covers, it is important to enhance coverage by opting for a Top-up or Super Top-up plan.

Adequate life cover: Along with health cover, get adequate life insurance cover preferably through a term insurance plan. A term plan is a low-cost, high cover plan and ensures financial protection to the family. One may even opt to add Riders such as accident benefit, critical illness etc to enhance the coverage of a term insurance plan.

Investing for long-term goals: The ideal way to save for long-term goals is to divert a portion of income towards them before spending. Identify your goals and then earmark funds towards them preferably though equity-oriented investments such as equity mutual funds. The better way is to keep investing through SIPs and link them to your long-term goals.

Investment Records: Maintaining a proper record of your investments is a crucial part of your investing journey. Make sure you have the policy documents of insurance policies and statements related to mutual fund investments stored in a place accessible to your family members. Along with bank details, your family members need to be aware of all your investments and insurance plans so as to avoid any last-minute running around.

Nominee: Lastly, make sure you have proper nominations made in all your investments and insurance plans. After all, the purpose of investing and insurance plans is for the benefit of your family. In the absence of nomination, the family members may find it difficult to put a claim on the proceeds. And, even after making nominations, you may create a will for a smooth transfer of your assets to your legal heirs.

(The author is Joint Chairman & MD, Bajaj Capital. Views expressed are personal)