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Top 10 financial steps to take in your lifetime

Courtesy: Vijayaragavan, Coimbatore

Top 10 financial steps to take in your lifetime


Here are the top 10 financial steps to consider before saying goodbye to the world:

1. Take stock of all your assets & liabilities.

The first thing to do is to make a list of all your assets (within and outside the house) as well as liabilities and also update the list annually so that things are easier for your family.

Your assets may include physical assets like jewellery, real estate, etc, and also financial assets like bank accounts, PF accounts, insurance policies, etc. Also, check for loans in your name or where you were a co-borrower. Share this information with your spouse or the guardian of your wealth.

2. Cover your liabilities

A key component of your financial plan is ensuring that your future liabilities are covered.

You should make sure you have enough insurance to cover all your future liabilities. You also need to analyze how much money you need to meet future financial goals, including the annual outflow required to maintain the current lifestyle. For this, you should subtract all your current financial assets and insurance taken from this sum - the remaining sum is the incremental insurance cover you will need.

3. Manage your debt

You should ensure that at least all your high-cost debt is paid off well in time so that your family members don't have to suffer later. Pay down your debt as quickly as possible so that you can enjoy the benefits of a debt-free lifestyle.

Also, if your investment portfolio is yielding a lower return than what you are paying on your loans on a post-tax basis, you should evaluate rebalancing your portfolio to reduce the debt component of the portfolio. You should also ensure that loans taken in a high interest rate scenario are renegotiated, if possible.

4. Check name & address for all assets

This is especially important for women who may have some assets titled under their maiden name. Many people when they move residences or change jobs do not take the time to update the information for old EPF accounts and other legacy holdings. But this is very important to have your financial house in order and avoid any inconvenience in future.

5. Check the titling of assets

Not paying attention to titling assets, especially financial assets, can lead to painful financial consequences. Therefore, for simplified estate planning purposes, when predetermined assets are to be transferred to spouse or an adult child directly, changing the account to joint holding with right of survivorship with the spouse or adult child as a joint or second holder will facilitate smoother transition.

6. Consolidate accounts

As you organize your financial life, you will come across several accounts which you will never use. Instead of facing an unnecessary liability in the future, it might be worth the one-time effort to consolidate several of your accounts.

7. Draw up a Will

Although you have done estate planning by titling the assets correctly and by choosing appropriate nominees, still if a person dies intestate (without a valid Will), then the division of assets is governed by the courts. Therefore, you must draw up a Will if you wish to avoid any bickering among the natural heirs. A Will also helps when there is ambiguity and lack of clarity about the natural heirs. However, make sure that the Will is registered to make it foolproof.

8. Consider a Trust

Many a times even after achieving financial success, people fail to segregate personal assets from business assets and expose all their assets to potential liability. For such individuals, creating a trust can be a way to ring fence personal assets. Trust can also be used for proper succession planning.

9. Build a contingency reserve

In case you haven't done so already, you should ensure you have put aside at least 6-8 months of expenses (including all your EMI payments) in a contingency fund. The contingency fund is best maintained in investments like money market funds which you can access immediately.

10. Talk to your family and inform key stakeholders

A lot of conflict and heartache which happen after the death of a loved one can be avoided if open lines of communication have been maintained with one's dear ones.You need to inform them of your wishes, where the important documents are located and who you have nominated as the Will executor. The family should also know about the various retirement accounts and benefits that you are expected to receive and the same.

Source : ET

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