In these days of financial troubles everywhere, I am thinking a lot on improving my financial situation and hence you may see most of the posts are on personal finance

“Insure your Child’s Education AND SAVE TAX”

“An insurance Plan for your golden years”.

These are the headlines screaming from Billboards on the way to work. I can’t help, but cringe when I think that I have fallen for these ads earlier in my career. One day, it struck me that there are 3 components to managing your money in the short and long term. I call these the “Pillars of personal financial management.”

Wealth Creation

By Wealth Creation, I mean creation of a corpus for all your major needs in life This includes planning for an Emergency Fund, Children’s education, lifestyle improvement (home/vacation), retirement etc.

Insurance

Insurance is a de-risking strategy that allows your dependents to maintain the same lifestyle if, God forbid, something happens to you. When I say insurance, I am talking of pure risk cover with no (or very less) money-back policies.

Tax Planning

Planning for saving tax simply frees up more money for you to spend – either on yourself, for wealth creation or for insurance.

How they are related

Tax savings can lead to wealth creation or insurance. Wealth creation, such as investing in PF or mutual funds and Investing in insurance can provide tax savings.

Experts advise to keep these three separate, but as I said, most financial products try to combine these options.  By itself, that is not bad, but these products are linked to the market, which means you are putting your money at risk! If you retire and there is a recession like the one we are in now, all your savings are lost unless you have chosen the most conservative option. If, like me and most others, you have not actively managed your risk option inside these products, you are liable for a shock.

Only a good financial planner will help you assess your financial state, expectations and create a comprehensive plan that will maximize your wealth, while saving you taxes and de-risking you through appropriate insurance.

Disclaimer: I am not an expert on finance – information and tips here are for sharing my experience and your understanding only. Please consult a qualified financial planner for any financial decisions.

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