The first financial kitty you must have is an emergency fund. This fund will take care of your emergency needs. In case of a job loss or pay cut or any kind of unforeseen circumstances that affect your income, the emergency fund acts as a back up to your expenses. Ideally you should have at least three to six month’ expenses in the form of emergency fund. If you are working in a sector where the job security is low, you will have to build a kitty of 12 to 24 months’ expenses. To build an emergency fund you can consider debt instruments such as liquid fund. You can also use fixed deposits to build the emergency kitty.
Irrespective of the condition of the economy, and even before you start saving and investing, you need to have a health insurance policy. The cost of healthcare can deplete your savings quickly and can also push you into a debt trap. A small amount in the form of premium can give you a cover of the amount that would take you years to build. For instance, with ₹7,000 every month, a 30-year-old person can get a health cover of ₹10 lakh. While buying a health plan, check the sum assured, the claim settlement ratio and exclusions. You can also increase the amount by buying a top-up plan and a critical illness policy.
In an unforeseen event of loss of life, you don’t want your family to suffer financially. In order to take care of their financial needs, you can buy a basic term plan. Term plan provides you higher cover at a lesser premium. You can also buy a personal accident cover to protect your income loss owing to permanent disability. Buying term plans online are cheaper. Don’t just look at the cost of the term plan. You should also consider claim settlement ratio and sum assured, based on the expenses. Another thumb rule you can use is linked to your income. If you don’t have dependents you can avoid this product.