Your First Investment
You are starting your investment journey. What should be your first investment??
If you are salaried Full Time Employee, you are already investing money. You and your employer put money into an Employee Provident Fund. Check my first salary Slip. You can see a section called Investment under 80c.
The minimum amount of contribution to be made by the employer is set at a rate of 12% of Rs. 15,000 (although they can voluntarily contribute more). This amount equals Rs. 1,800 per month. It means that both the employer, as well as the employee, have to contribute Rs. 1,800 each per month towards this scheme.
Organize your money
You have to separate your money into purpose. One way is to have three bank accounts: 1. Salary/Income Account 2. Spending Account 3. Investing Account
When Salary comes into the Income Account, you fix an E-mandate that moves 30% of your salary to the investing account and the rest to the spending account. A very good rule is 50-20-30. Use 50% for daily needs, 20% for personal needs, and 30% for investments.
Emergency Fund
You calculate your monthly expenses, which include everything: bills, EMIs, food, rent, children's school fees, etc. Multiply it by a factor of 6-24, depending on your age and responsibilities, and put it in a safe place!!
What is a safe place?
However, there are multiple ways to do this. The best way is to create an FD or multiple FDs in a sizeable institutionalized bank like SBI, HDFC, or ICICI. There are other instruments as well where we can park money safely. We will discuss them as we move forward.
Insurance
Insurance is an instrument where you pay a small fee to get a large sum of money/support in an emergency. You need to have two types of insurance:
Term Insurance
Take your yearly income. Multiply it by 15 or 20 and take a term plan. It should not have any other clauses. Just that at your untimely death. Your family will get 15 to 20 times of your annual income. The Premium increases as you age. So, the earlier you get it, the better it is. The premium is also meager, around 10-15k Rs for 25-year-old people. Also, as your premium gets fixed, it will get cheaper due to inflation.
Health Insurance
Points to note when buying health cover:
Ensure you have a policy that does not have a ‘co-pay’ clause. Co-pay: You agree to settle some percentage of the hospital bill from your own money and the rest will be paid by insurance claim
Check for a ‘pre-existing’ disease clause: Some insurance may refuse to grant claims for pre-existing diseases
Check if your policy has a ‘disease waiting period': After how much time one can put a claim for pre-existing diseases
Check if your policy has ‘sub-limits': Because hospitals have become hotels that give VIP rooms for 15,000 a day. An insurance may say that they will not allow any claims of more than 4000 Rs a day with a co-sharing room.
Check for exclusion: Some policies may exclude pregnancy-related ailments, cancer treatment, etc.
Ask how much of the costs before and after hospitalization the policy will cover: You may need physiotherapy after bone fracture care. Will your insurance cover that or not?
Ask for a list of ‘day-care’ procedures that don’t need you to stay for twenty-four hours in a hospital anymore: Certain procedures have same-day discharge, but doctors ask to stay at the hospital for a day because you can't claim insurance on single-day procedures.
Look at the ‘no-claims bonus’ feature: Some insurance increases cover if you don't claim insurance for like 12 months.
How many claims does the company settle?
Look at the claim-complaints data for a policy with less than thirty complaints on every 10,000 claims made.
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