Does your financial plan offer guarantee with flexibility?

Priya (24 years old), who works in a bank, earns enough to save nearly 30% of her income after taking care of her household expenses. She has surplus money in her savings account and is looking for appropriate investment options.

She wants to invest in a plan that will take care of her marriage expenses while fulfilling her travel goals. The current pandemic outbreak, volatile market, and decreasing interest rates have left her stressed and in two-minds – should she invest for her long-term goals or keep the money handy for a rainy day? She worries if she will be able to accomplish her financial goals in such an uncertain environment.

The current pandemic has resulted in the adoption of the ‘flight to safety’ approach, where people want to secure their hard-earned income and protect their life and health both.

While individuals want to grow their money, they also want enough liquidity in hand to take care of short-term or unplanned expenses.

In such a scenario, what is the prudent way of financial planning? How to ensure adequate savings for long-term goals, while having enough liquidity to manage exigencies?

Aim for a comprehensive plan

It is important to create a portfolio based on time. One must first categorise his/her goals as short-term (3-5 years), mid-term (5- 10 years), and long term (10 years or more).

With the growing uncertainties, planning for short-term financial goals is equally important while one plans for long-term aspirations. Besides planned goals, it is important to consider emergency money needs as well.

Know your risk profile

While evaluating a financial instrument, it is important to gauge the risk along with the probable returns. With age, an individual’s needs, goals and risk-taking abilities change.

Therefore, one’s financial profile should be realigned as one moves from youth to middle age to retirement.

Post considering how much one can bear, one should accordingly calculate risks and plan for the appropriate amount of money.

In keeping with the current scenario, it is important to hedge financial risks arising out of health ailments, life risks, and volatile markets, making an individual’s financial planning foolproof and comprehensive.

Plan without compromises

During uncertain times, it is prudent to focus on safe investment options. Keeping a track of one’s financial goals helps avoid unnecessary stress. Therefore, a plan should have a fair balance of long-term financial security to meet future requirements and enough liquidity for unplanned expenses.

How can Life Insurance help?

What is the first thought that one gets when thinking about life insurance? It is long term. It covers life. In addition to providing long-term savings and life cover, there are life insurance plans which offer guaranteed long-term returns while offering adequate flexibilities.

Such policies help an individual to reduce portfolio risk by creating regular and assured annual income to fulfill short term money needs while accumulating desired funds for future goals.

In a volatile and uncertain market environment, such plans cater to guaranteed savings and act as one of the safest options to save and grow one’s money, besides taking care of the liquidity needs. Additionally, such plans offer life cover securing the financial future of one’s loved ones.

Life insurance can hedge several risks and act like a safe and secured cushion to one’s hard-earned money.

Therefore, whether one desires a bigger house, better education for kids or
a family holiday, prudent financial planning can help fulfill all these aspirations, without disrupting these plans even on a suddenly rainy day. So, all you need to have is a robust but flexible plan to safeguard your dreams and withstand any volatility.

(The writer is Chief Actuarial Officer, ABSLI)