Personal Finance Pillars

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The 3 Pillars of Personal Finance

Insurance, Emergency Funds, and Investments.

Ever feel like your finances are on a tightrope walk? One unexpected gust and you could lose your balance. But what if there was a safety net you could build to catch yourself? That's exactly what the 3 pillars of personal finance are for: Insurance, Emergency Fund, and Investments.

Imagine your financial future as a sturdy bridge:

Insurance: The sturdy pillars holding the bridge high. They protect you from life's unforeseen events, ensuring your financial well-being today (present) and your loved ones' tomorrow (future).

Emergency Fund: The strong support beams. This readily available cash helps you weather unexpected storms, like job loss or medical emergencies, without derailing your financial journey.

Investments: The pathway leading you across the bridge. This is where you grow your wealth for long-term goals like your dream car, retirement, or that world trip! If you want to get started with sorting your finances you should start with 3 primary pillars to protect your - Today, Tommorow and Day after tomorrow, that is Present, Near future and long future financial fund planning.

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Let's delve deeper into each pillar:

Pillar 1: Insurance - Your Financial Lifeline

Think of insurance as a superhero cape, ready to swoop in during emergencies. It safeguards your loved ones financially in case of:

Health Insurance: Covers medical expenses if you or a family member falls ill, preventing a medical crisis from turning into a financial one.

Term Life Insurance: Provides a lump sum to your dependents if you pass away, ensuring they can maintain their financial stability.

Pillar 2: Emergency Fund - Your Safety Net

Once your present is protected, it’s time to secure your near future. Life throws curveballs. An emergency fund is your financial cushion for unexpected situations like car repairs, sudden home expenses, job loss, unexpected health expenses, or an opportunity that requires immediate cash, an emergency fund ensures you have the financial means to navigate these situations. An emergency fund typically consists of extra cash worth 6-8 months of your total expenses, parked in liquid instruments such as savings accounts, fixed deposits, or liquid funds.

Pillar 3: Investments - Building Your Bridge to the Future

With your present and near future secured, it’s time to plan for your distant future. How will you buy your dream car or house? How can you build wealth for an early retirement? The answer lies in investing.

This is where you turn your savings into wealth! By investing regularly in instruments like mutual funds, stocks, or bonds (depending on your risk tolerance), you harness the power of compounding. This means your money grows over time, helping you achieve your long-term financial goals, whether it's an early retirement, a dream vacation, or that fancy car!

Remember: These pillars work together. A strong insurance base protects you from setbacks, while your emergency fund acts as a springboard for short-term needs. Finally, investments pave the way for your long-term dreams.

Insurances protect my Today/ Present, Emergency Fund protects my Tomorrow/ Near Future Investments Protect my Day after tomorrow/ Future

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Okay, thanks for the theory but

Where/ How should I start? 🤔

Original Content

Step 1: Get an Income

The first step to get started is getting some income, If you don’t have a primary income then the priority should be to get one instead of thinking about building investments, passive income etc. Before building your safety net through an Emergency fund you should focus on building a steady income stream. Step 2: Get a good health insurance

If you don’t already have a Health insurance get good health insurance prior to anything else. If you don’t have health insurance and you are just a health issue away from loosing all your savings and even getting into debt. But How and where to chose a good health insurance?? Watch this video and you are done:

Ultimate Health Insurance Guide | The last video you need before buying policy! (youtube.com)⁠

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Step 3: Get a life insurance (Only if you have dependents)

If you are the primary earner in your family and your family is dependent on you financially, then getting a term life insurance is the first thing you should do after getting a health insurance. In case of any mishappnig and your death your dependents will get a lumpsum cover amount to sustain for next 5-10 years at least through your term life insurance. Thanks, But again How and where to chose a good term life insurance?? Watch this video and you are done:

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Term Insurance : Ultimate Guide | Best Life Insurance 2023 | LLA (youtube.com)⁠

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Step 4: Start building an emergency fund

Step 5: Start Investing regularly

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Your Journey to Financial Literacy: A Step-by-Step Guide

Wondering where to start?

Here’s a roadmap to help you navigate your financial journey:

Step 1: Secure a Steady Income

The first step on your financial journey is securing a steady income. If you don’t have a primary source of income, this should be your priority. Before you can think about investments or passive income, you need a reliable income stream to build your financial safety net.

Here's a easy way to get it done 🤩

Sorry, there is no easy way and I can’t help you with it. You will have to do it yourself, buddy. All the best.

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Step 2: Invest in Health Insurance

If you don’t already have health insurance, make this your next step. Without health insurance, a single health issue could wipe out your savings and plunge you into debt.

Wondering how to choose the right health insurance? Watch this video and you are done with all your health insurance research:

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Step 3: Consider Life Insurance (If You Have Dependents)

If you’re the primary earner in your family and your family depends on your income, then life insurance should be your next step after health insurance. In the unfortunate event of your death, a term life insurance policy will provide your dependents with a lump-sum amount, helping them sustain their lifestyle for at least the next 5-10 years at least.

Need help choosing the right term life insurance? This video has you covered:

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Step 4: Build an Emergency Fund

Now that you’ve protected your present, it’s time to secure your own near future. An emergency fund is a financial safety net that can help you weather life’s unexpected storms, from job loss to sudden expenses. Aim to save enough to cover 6-8 months of your total expenses. This money should be easily accessible, so consider keeping it in a safe and a liquid instrument, making returns out of it is not a priority. You can consider following instruments for parking your emergency fund:

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Debt Mutual funds⁠

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Liquid Mutual Fund

Overnight Mutual Funds

Ultra-short duration debt Mutual funds

Savings Bank Account

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Short Term Recurring Deposits⁠

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Term Deposits or Fixed Deposit⁠

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Step 5: Start Investing Regularly

With your present and near future secured, it’s time to plan for your distant future. Regular investing is the key to building wealth over the long term. Whether your dream is to buy a car, a house, or retire early, regular investments in instruments like mutual funds, stocks, or bonds can help you achieve your financial goals. Remember, the power of compounding means your wealth grows over time, so the sooner you start, the better!

Remember, these steps are not one-time tasks but ongoing commitments. Stay disciplined, keep learning, and you’ll be well on your way to financial literacy and independence! Okay, Where to invest now???

Wondering where to invest? If you’re a beginner, the safest and easiest instrument to start your investment journey is with Index Funds.

Index funds are a type of mutual fund that invests in an index, which represents the entire market. For instance, the Nifty 50 is the primary index of the National Stock Exchange (NSE) and comprises the top companies in India. So, when you invest in an index fund that tracks the Nifty 50, you’re essentially investing in the progress of these top companies, which indirectly means you’re investing in the progress of the nation.

In a developing country like India, index funds can easily yield approximately 12% returns in the long term, with lesser risk compared to other instruments that offer similar returns.

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Here’s a list of index funds that could be a great starting point for your investment journey!⁠

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Again, If you are a complete beginner then starting a SIP in a Index fund would be the best option for you to start investing, Starting with Index fund would eliminate the need for you to constantly watch and Analyse market and also automatically diversify your investments among various sectors.

What Next ?

Congratulations! 🎉 If you’ve checked off all the pillars, you’re already ahead of 90% of people and have built a strong financial foundation for yourself. The next steps are to stay consistent with your investments, adjust your emergency fund and insurances according to your changing needs, and most importantly, keep learning and taking an active interest in your finances to optimize them further and to be aware of what’s happening with your money. You’ve done it, my friend! 👏

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If you’re like me and love playing around with financial tools and calculators, feel free to explore

here⁠

. It’s a great way to visualize your financial journey and make informed decisions.

Remember, the journey to financial literacy is not a sprint, but a marathon. Stay curious, stay disciplined, and you’ll be well on your way to financial independence! 🚀