I am a divorcee living with my teenager son. I am working as a teacher in a private school. My monthly income is 40,000. My son is pursuing for correspondence degree and side by side doing part time job and earning 12,000. I don't have any savings, health insurance etc. My humble request to guide me how can we start our savings now. I also want to buy health insurance for me without any more delay. Please guide. Regards

Ans: It's a privilege to help you with your financial planning. With some thoughtful strategies and careful planning, you can establish a solid financial foundation for you and your son. Let's break it down step-by-step.

Understanding Your Current Financial Situation
You earn Rs 40,000 per month, while your son contributes Rs 12,000 from his part-time job. Together, this makes a combined monthly income of Rs 52,000. Recognising this starting point is crucial for building a robust financial plan.

Considering your situation, it's commendable that you're keen on starting savings and securing health insurance promptly. This shows foresight and responsibility, which are essential traits for successful financial planning.

Budgeting and Expense Management
First, let's address budgeting. Tracking your expenses will help you identify areas where you can cut costs and save more effectively.

List Monthly Expenses: Break down your monthly expenses into categories such as rent, utilities, groceries, transportation, and other essentials. Also, factor in any discretionary spending like dining out or entertainment.

Evaluate and Trim: Assess each expense category to see where you can make adjustments. For example, cooking at home more often can reduce food costs. Small changes can add up to significant savings over time.

Set a Savings Goal: Aim to save at least 20% of your combined income. This would amount to Rs 10,400 per month. Start by saving any amount you can and gradually increase it as you manage your expenses better.

Prioritising Health Insurance
Securing health insurance should be your immediate priority. Medical emergencies can lead to substantial financial stress without adequate coverage.

Choosing a Plan: Look for a comprehensive health insurance plan that covers major illnesses, hospitalisation, and critical care. Compare different plans and their premiums to find one that fits your budget.

Covering Both: Ensure that both you and your son are covered under the plan. Family floater plans can be a cost-effective way to provide coverage for both of you.

Building an Emergency Fund
An emergency fund is essential for handling unexpected expenses such as medical emergencies, job loss, or urgent repairs.

Initial Goal: Aim to save at least three to six months' worth of living expenses. Given your current income, this would be between Rs 1,20,000 to Rs 2,40,000.

Saving Incrementally: Start by saving a small amount each month. For example, allocate Rs 5,000 monthly towards your emergency fund until you reach your goal.

Establishing Regular Savings and Investments
Once you have a health insurance plan and an emergency fund, the next step is to begin saving and investing regularly. Given your income, you can start small and gradually increase your contributions.

Recurring Deposit (RD): A recurring deposit is a safe option to start with. You can save a fixed amount every month, which earns interest over time. This is suitable for short-term goals and offers liquidity.

Mutual Funds: Mutual funds are an effective way to grow your wealth over the long term. Choose actively managed mutual funds, as they often outperform index funds due to professional management and research.

Systematic Investment Plan (SIP): Start a SIP in mutual funds to invest a fixed amount regularly. This helps in averaging the purchase cost and reducing risk. For instance, a SIP of Rs 5,000 per month in a diversified mutual fund can be a good starting point.

Evaluating and Managing Existing Insurance Policies
If you hold any investment-cum-insurance policies like LIC or ULIPs, consider their performance and charges.

Review Policy Details: Check the return on investment, charges, and insurance coverage. Many times, these policies have high charges and low returns.

Surrender and Reinvest: If the policies are not yielding satisfactory returns, consider surrendering them. Reinvest the proceeds into more efficient instruments like mutual funds for better growth and separate term insurance for adequate coverage.

Planning for Long-term Goals
Setting long-term financial goals will provide direction and motivation to your saving and investment efforts.

Child’s Education: With your son pursuing a correspondence degree, consider his future educational aspirations. Start a dedicated investment for this goal, like a mutual fund SIP, to build a corpus over time.

Retirement Planning: Even though you may have several years until retirement, it's never too early to start. Look into retirement-focused mutual funds or pension schemes that can provide a steady income post-retirement.

Avoiding Common Pitfalls
It's important to be aware of common financial mistakes and how to avoid them.

High-interest Debt: Avoid taking on high-interest debt like personal loans or credit card debt. If you already have such debts, prioritise paying them off as soon as possible.

Investing without Knowledge: Invest only in products you understand. Take time to educate yourself about various investment options and their risks.

Over-diversification: While diversification is key to reducing risk, over-diversification can dilute returns. Choose a balanced portfolio with a mix of equity and debt based on your risk tolerance.

Seeking Professional Guidance
While self-education and disciplined saving are crucial, consulting a certified financial planner can provide personalised advice.

Professional Advice: A CFP can help you create a tailored financial plan, optimise your investments, and ensure you stay on track to meet your goals.

Regular Review: Schedule regular reviews with your financial planner to assess your progress and make necessary adjustments.

Final Insights
Your willingness to start saving and securing health insurance is a commendable step towards financial stability. By budgeting effectively, prioritising health insurance, building an emergency fund, and investing wisely, you can create a secure financial future for yourself and your son. Remember, every small step counts, and consistency is key. With careful planning and disciplined execution, you will achieve your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in