5 steps to financial security with middle-class pay

Most tabloids and finance-magazines target only the super-rich. Folks who earn within Rs. 10,000 to Rs. 20,000 per month are not even considered by most financial experts. Ironically, this group is the one who needs financial advice the most. The following five steps are ways I believe that anyone on a meager income have some financial security and even affluence over the long term. There are four aspects I have especially kept in mind for such investors.

i) They do not have enough money to gamble with shares. I do not call them risk-averse because they simply do not have surplus income…

ii) Medical expenses over the years just eat away their savings and force them into debt.

iii) Retirement is often stressful with pensions unable to meet financial demands.

iv) House-building loans hound most even after retirement.

 

I presume your earnings to be Rs 10,000 per month with no other income at all.

I also presume that you are thirty now and thee are at least two dependants you have to look after.

a) Buy a family mediclaim with at least 1 lakhs’ cover each. The best buy for middle-class people in India remains the New India Assurance company. After all the government does generally pay up and take lesser premiums. Medical insurance is the first necessity. Chances are that you will not die as fast as get ill horribly. Add an accident rider to your policy.

b) Endowment policies and other life-insurance policies which combine an element of investment are thought to be bad for the investor. But I hold it true that for people who should not and cannot afford to take risks, it is better to have safe endowment policies. Again I would anytime prefer LIC than any private company. Also save the money for the policy per month in a savings account and pay the premium at one go. Monthly installments for paying up premium increase the total premium amount.

c) Put in at least Rs 500/- per month without failure in your local Public Provident Fund account. Just get into the habit of doing so and forget the money. After 15 years you will have a small eggs’ nest. Also that adds up to Rs 6000/- saved in tax deductions.

d) Every month invest only Rs 500/- through Systematic Investment Plan ( SIP ) in any one good Mutual Fund. Make sure it is an ELSS fund. They have a lock-in period of three years and at the same time are funds which can be shown on your tax-deduction slips.

e) Lastly, if you have to take a loan for anything including house-building loans, take it from nationalized banks after thorough searches about the best rates. The look of the banks may not be good but their rates are often more suitable to small customers. Generally over a spectrum of similar financial services, nationalized banks have lesser hidden costs than private banks.

Disclaimer:

The advice here is purely personal and liable to fail. Invest at your own risk…

Image: Thanks for the pic !