Of-late I have been hearing many stories of how a particular person went bankrupt despite having a shit-load of money. Either the person has lost everything in business or stock markets or have become victim of debts. Thinking about their family is such a situation itself makes everyone feel sorry.

How to avoid this ‘sorry’ situation?

Let’s assume that any self-made married person is earning about Rs 30,000 a month, staying in his own apartment and has Rs 20 lakhs as his ancestral gift. It is quite obvious that his salary won’t be sufficient to carry out his monthly expenses. Here is a suggestion of what can be done –

Plan SIPs

First and foremost keep aside Rs 5000 a month for SIPs (Systematic Investment Plan) for atleast 20 years. Yes it will be extremely painful to keep aside such an amount from a meager salary. But imagine the amount you might get after 20 years.

Capital invested would be Rs 12 Lakh and the amount your would receive would be           above Rs 40 lakh. With just one decision you can secure the life of your family.

Fixed Deposits

Of the capital of Rs 20 lakh you have, place Rs 15 lakh in a Fixed Deposit. Make sure that your receive interest of the capital on a quarterly basis. Interest (Assuming 7%) on Rs 15 lakh on a quarterly basis amount to Rs 26,250. That’s Rs 8750 a month. You can finance your SIP through the interest itself. The greatest advantage is that your money will work itself and give you their income.

Remaining Rs 5 lakh, build a portfolio. While building a portfolio make sure that you hold on to it for atleast 3-4 years to reap the benefits of dividend and bonuses.

Close your Loans and Credit Card ASAP

Loans and credit cards are major causes for a person’s destruction. Loans attract interest and when you cant pay them, interests are compounded and add more to your financial woes.

Believe it or not it can disrupt your entire budget and financial planning. So get rid of it as soon as possible. Or work overtime till the time your interests are covered. But it is important that your loan is paid off ASAP.

Credit Card is the second villain of your finances. Once you get a habit of paying from credit card, you tend to gain this habit of paying later. This attitude of paying later results in unpaid interest which again disrupts your finances. So pay off credit card ASAP and never use it until and unless there is a case of emergency.

Save, save and save

Every penny saved is every penny earned. This phrase is true to every word. Of course you will not understand this now because you have a steady flow of income. But God forbid if you run out of money, it is only then that you realize the importance of saving money.

It does not matter what you earn. What matters is you save something for the rainy day. Like Warren Buffett said, “Don’t save after spending money, always save first and then spend money.”