There is a constant fear of running out of money among the salaried middle class that has to divide the limited earnings between savings and investments before planning expenses. While this habit does help people amass the much-desired corpus, the fear of not having enough to meet post-retirement expenses keeps them on edge throughout. It is this unwarranted fear that not only forces people to cut down on many expenses but also limits them to a lifestyle they may not be accustomed to.
Defining ‘financial independence’
Many associate “Financial Independence” with retirement. They think financial independence is all about retiring early. Interpreting this term wrongly has caused many people to make wrong financial management decisions.
A closer interpretation of “financial independence” is about being free from money-related worries. Financial independence implies the freedom with which you can pursue your hobbies and ambitions without having to worry about losing your primary source of income. Financial independence is a feeling that relieves you from constant anxiety stemming from the most common and pertinent question, “Have I saved enough money to last this lifetime and leave behind something for my loved ones?”.
How do you check if you have saved enough money?
One may argue that only those who have enough money fear running out of money in the long run. After all, you fear losing only what you have and not what you are yet to have. Reviewing your financial condition regularly will not only relieve you of this unwanted fear but also ensure that you strictly adhere to your financial goals without going wayward out of impulse or boredom. You may start by corroborating the following details.
Do you have a regular income source for post-retirement period?
This is important as you must have enough money to take care of the golden years of your life. Devaluation of money is constant, which is why you must plan your future income sources only after assessing the future value of your current expenses while also including possible expenses associated with growing age. Health-related expenses must be taken care of though you must add the amount you would need to pursue your hobbies like travel or relocating to a new place and more.
Have you bought life insurance?
Life is uncertain. The fact that your loved ones would still have to continue living without you is certain. This also explains the need to make enough provisions for them to fall on. For this, you must have a life insurance plan. To start with, you must opt for a life insurance coverage amount equivalent to 10-12 times your annual income. Alternatively, club the essential expenses that you are paying for currently along with anticipated expenses on your children’s education, marriage, repaying the debt you had incurred and more. Then, calculate the future value of this money and ensure that the life insurance plan you have bought allows them to meet their current lifestyle needs in the event of your sudden demise.
Do you have adequate health insurance coverage?
You cannot ignore the rising costs of treatment. Hospital bills are a major cause of concern. The sudden pandemic onslaught in 2020 and the scare it brought into people’s lives remind one of the need to have adequate health insurance coverage that would not only pay for their treatment but also help in meeting expenses of regular check-ups, costs of medicines and medical consultation. The health insurer usually pays the hospital directly (cashless facility), reimburses the costs of illnesses and injuries, or pays a fixed benefit if an illness occurs. So, choose your health insurer accordingly.
Are you still repaying your loans or debts?
You may have sought a loan to buy a house or relied on credit cards heavily to meet daily expenses. Irrespective of the kind of debt you have incurred, the idea “enjoy now; repay later” may cost your loved ones dearly in your absence. This is because debt comes with interest and penalties, if not paid on time. Ensure that you focus on repaying your debt before committing your income to varied investment opportunities. The earnings on investments take time while debt is continuous and recurring. You cannot rely on expected returns on investments to pay off your debt in the future. Also, the quantum of debt increases as one delays or postpones payments, thus, underling the urgency to get rid of them early in life. If the amount of the loan is huge or if you are still repaying your debt, ensure to add this amount to the life insurance coverage before buying a life insurance plan.
If you still fear that you may not have saved enough, it’s time to relook at your financial habits, especially, with regard to your savings, investments and expenditures. If you have already accumulated a huge corpus amount, make sure that you do not succumb to relentless spending habits on luxuries and other unnecessary things. Inflation has a damning effect on the value of money due to which the rate at which money grows is less than the growth rate of expenses. This underscores the need to be constantly vigilant about money matters.
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First Published: 04 Jan 2023, 08:00 AM IST
