Financial Stability

If you have adequate health insurance, term life insurance, and 6-12 months of expenses in an emergency fund, you are financially stable and capable of handling most unexpected financial events without rocking your boat much. Good job if you are already here!

You are now at a very good stage to start your investment journey towards financial security.

The first step is to set financial goals. That is, calculate how much money you would need, for what, and when. Remember, Wealth building is not a goal! Even if you say you don’t have any goals in life, building a corpus for retirement is a goal for almost everyone. Your income will stop at some point, either when you reach regular retirement age, or if you are fired pre-maturely. Or you might voluntarily want to retire early (at 40 / 45 / 50 / 55 / whatever…), for which you need to know when you can afford to do so. Unless your retirement plan is to be fully dependent on your children (which takes you back to the bottom of the wealth pyramid!), you should plan ahead for being independent financially in retirement. Other large financial life goals could be things like saving up for the down payment, or the full amount required to buy the house of your dreams, or it could be your children’s higher education (which is getting costly by the year) or even their wedding expenses, if you so desire.

Once you have come up with your financial goals, the next step is to have an asset allocation and an investment plan in place. You need to understand the role of inflation and why it is important to start investing early, and in the right instruments (such as equities) to be able to beat inflation in the long-term – and accordingly calculate how much you need to invest to meet your financial goals comfortably.

If you do all this and invest regularly, in a few years’ time, you should be well on your way towards financial security.

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