Set Aside Emergency Cash

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Series: Beginning Investing (8th post)
Section: Before You Invest
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Now that you have productively used your monthly savings in reducing your debt and purchasing adequate insurance, there is one last thing to take care of before you move on to investments - setting aside emergency cash.

Though the risk of losing your income is low, life is uncertain and any number of things may come up to disrupt the normal course of things and force you to take a break from your job. It is also possible that you may need extra cash to handle an emergency or just to take advantage of an unexpected opportunity.

For such situations, it is important to have a cash buffer. The amount you set aside is up to you, but given the primary purpose of having sufficient liquid funds to tide you over in case you lose your income, I would suggest the minimum you set aside should be enough to cover 6 months of regular expenses, as determined based on your expense analysis earlier.

These funds need to be readily accessible and risk-free, and hence should be kept in a bank account and not as a fixed deposit or in high-risk investments. You may not earn much from this money but that's not an issue.

This concludes the section on things to take care of before you invest. The main purpose of these last three posts was to ensure a fallback plan for you and your family in case of trouble, a conservative approach that will allow you to invest your money secure in the knowledge that you have provided well for the people that depend on you.

Next Post on Beginning Investing: How Much Risk Are You Willing to Take?

Insure Yourself and Your Property

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Series: Beginning Investing (7th post)
Section: Before You Invest
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Today's discussion will be on the next important thing to tackle before you start investing - Insurance.

Generally speaking, most of us equate insurance with savings, treating it as an investment mechanism. This midset is reinforced by the tax rebates we get on insurance, encouraging everyone to invest more and more in high-premia endowment plans every year in order to avail of the tax benefit.

However, the main purpose of insurance is to mitigate risk - risk of death (life insurance), risk of loss (general insurance), risk of illness (medical insurnace) or risk of untoward incidents while travelling (travel insurance).

As an individual, and a responsible householder, you should cover all of these risks when you plan your insurance, rather than rushing off to purchase more life insurance just because you get a tax break!

How Much Insurance Do You Need?

This is a fairly straight-forward question to answer:

• Life Insurance: The conventional approach is to insure yourself for an amount equal to about 10 times your annual income, which is a truly staggering sum! However, I believe this is a better way of looking at it. I also subscribe to the concept of layering your insurance plans so that you can increase your insurance amount over time till a point, after which it starts to reduce because you have saved a good amount by then and might not need so much insurance
• General Insurance: Insure your house (an option that generally is offered with many home loans nowadays - go for it) and your valuables. Burglaries and other mihaps happen and you'll sleep much better knowing that you have a fallback option. There'n no reason for you to learn this the hard way as general insurance premia are really low and definitely well worth the benefit!
• Medical Insurance: In general, try to get yourself and your family covered for major illnesses and surgeries. Some banks, such as Andhra Bank, offer a floating cover that can be shared by the entire family, which I think is a very useful facility as it saves the trouble and expense of insuring each family member independently
• Travel Insurance: This is a must while travelling. If you are abroad and things get stolen, your personal funds will not really help much, I can tell you!

A Bit on Life Insurance

There are two basic kinds of life insurance policies: endowment, wherin it is a risk cover cum saving scheme (this includes money-back policies, unit-linked insurance etc) and term assurance , which is a pure risk cover. The returns on your investment in the former are generally worse than you can do with other comparable investments in the market so I'd always recommend term assurance as the best form of life insurance. It has the added advantage of having very low premia because you need not invest anything in savings. However, due to its nature, the entire premium is an expense. Once you pay it, it is gone and you will not get it back unlike in an endowment policy.

Next Post on Beginning Investing: Set Aside Emergency Cash

Real Estate Prices - Chennai

The following is a piece contributed by Raheja Assoiates, one of the premier real-estate brokers in Chennai.

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The real estate market in Chennai is on the upswing thanks to the IT Boom and the number of manufacturing industries preferring Chennai as their destination point. A number of new companies such as Flextronics, Nokia, Motorola etc. have chosen Chennai to set up their factories. Along with them, a number of subsidiaries have also come into Chennai. This has helped the real estate industry to grow from within the city limits to the outskirts.

Some of the fast-growing areas where one could think of an investment are Sriperumbudur, Maraimallai Nagar and the IT Corridor (Old Mahabalipuram Road). The land prices in these areas have more than doubled in the last six months . One could also think of an investment on the East Coast Road close to the sea but beyond the 500 meters guideline.

Some of the prevailing prices for brand new apartments in the prime areas are:

• Boat Club Road: Rs.12000 to 15,000 per sq.ft.
• Poes Garden: Rs. 10000 to 12,000 per sq.ft.
• R.A.Puram: Rs. 7000 to 7500 per sq.ft.
• Harrington Road: Rs. 7500 per sq.ft.
• Adyar: Rs. 5500 per sq.ft.
• Kilpauk: Rs. 5500 per sq.ft.
• Thiruvanmiyur: Rs. 4500 to 5000 per sq.ft.
• IT Corridor: Rs. 3200 to 3400 per sq.ft.

For further information please contact Raheja Associates at www.rahejas.com.

I hope this article will help those of you seeking to make investments in property. Do you think I should make it a regular feature? Please leave your comments to let me know.

Have a Wonderful 2007!

A happy new year to you! Hope 2007 brings you peace and prosperity and takes you several steps onward in your journey to wealth and financial freedom!