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If you’ve recently pledged to get your finances in order, there is a wide range of resources available today to help get you started. Monika Halan’s bestselling book, Let’s Talk Money is one such book that offers valuable insights into managing your finances effectively. When it comes to money, there is no one size fits all, so in her book, she helps you build your own process to manage your money, breaking down complex concepts and citing examples to help you grasp them better. If you’re short on time or not big on reading, here’s a short breakdown of the key takeaways that can help you gain control over your financial journey.
When Labels Are Good
Halan emphasizes the importance of compartmentalizing your finances based on their functions: income, spending, and saving. Designating separate accounts helps your brain comprehend your money’s purpose better. Your salary account should be your primary income account – this is typically a zero balance account so if need be, you can withdraw it completely without any penalties being imposed for the same. This account is where ALL your income should go, including rent, bonus, dividends or any borrowed money being returned to you.
For regular monthly expenses, maintain an expenditure account with a buffer of 10-15% for unexpected costs. This can even be a joint account if you share financial responsibilities with a partner. During the initial months, allocate a portion of your income to your expenditure account to accurately gauge your spending patterns and keep a small cash reserve in your income account till you get a clearer picture of your monthly expenses. You should be set in about 3 months. This mindful labeling of money fosters a clear mental map of its usage. All of your remaining cash in your income account should move to another account which is purely for the purpose of investment.
Emergency Cash: Planned vs. Unplanned Events
Halan advocates for building an emergency fund that covers 6 to 24 months of living expenses, encompassing everything from EMIs to memberships that you essentially wouldn’t want to live without. This fund acts as a safety net for unplanned events or higher than expected expenditures on planned events, ensuring that you don’t have to compromise your long-term goals. Consider parking this fund in a savings account or flexible/sweep-in fixed deposits (FDs) to maintain liquidity. Spreading the fund across multiple FDs can safeguard against interest loss if you need to withdraw some funds. While alternative debt products like debt mutual funds and bonds with higher post-tax returns can be explored, careful research is essential before investing. Once your emergency fund is in place, you can confidently divert your surplus money toward investments.
Seek Protection: Insure Wisely
Insurance is a crucial aspect of financial planning. Halan advises purchasing comprehensive insurance coverage to safeguard against emergencies. While buying insurance is complicated and requires in-depth research.
Here’s a few things she advises you to check for if you’re just starting out:
Avoid co-pay clauses: Choose an insurance policy that covers 100% of your expenses instead of sharing expenses with you. This is especially important if you’re young. As you get older, a co-pay may be required in some cases for you to be able to secure a policy altogether.
Scrutinize the pre-existing diseases clause: While this exists in almost every policy, prioritize buying a policy where the pre-existing diseases are covered after 1-2 years of policy purchase at least otherwise, the premium paid on that policy may render itself useless if you are in need of making a claim on an expense related to such a pre-existing condition.
Beware of exclusions and sub-limits: Carefully note the exclusions from such a policy and also if there are any sub-limits on things like room rent.
Ensure your insurance agent possesses the expertise and choose a plan that suits your needs. A no-claim bonus rewards you an additional 10% – 15% cover for maintaining a healthy financial and medical track record. Also, always check for the claim % of the policy and reviews about claim experience – when you’re hassled with a medical emergency, the last thing you’d want is to fight with the insurance agent over what’s covered and what’s not.
Monika Halan’s insights from Let’s Talk Money provide actionable steps to manage your finances strategically. By segregating funds, building an emergency corpus, and making informed insurance choices, you can lay a strong foundation for your financial well-being.
We’ll cover more takeaways from the book in the following parts, so stay tuned!