Three personal finance risks for salaried professionals

A man deposits his money in a bank in Amritsar April 19, 2010.

The three major risks involved in personal financial planning for salaried professionals can be categorised under 3 broad areas:

1. Personal life

2. loss of income

3. Inflation

Let us look at what each categorymeans.

PERSONAL RISK

This is a broad category, which includes the risk of falling ill or any other health issues. Personal risk also includes the threats associated with the people in our life about whom we care or are responsible for. There are many kinds of safety issues associated with our personal life. The best way to protect ourselves against personal risk is insurance (health insurance, fire insurance for the house, vehicle insurance and most importantly life insurance). Nowadays there are very niche insurance policies available like wedding insurance.

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INFLATION RISK

The best way is to set goals for high cost purchases and keep a track of the prices continuously. If at a point you realize that the prices may jump and also have enough cash accumulated, buy it. Small value purchases and regularly used stuff cannot be protected against. You cannot buy 100 kg of onions and store just because someone said onion prices are going up. Stocking up is a good way to protect against inflation risk, provided the items can be stored for long time. Many families buy a year's quota of pulses, cereals etc to protect against monthly price fluctuations.

INCOME LOSS RISK

Although we would always like to believe that our jobs are forever, it may not always be the story. Companies which are stable could close overnight. We may be forced to quit our job at anytime due to personal reasons. The best way to protect against income loss risk is to have at least 6-8 months' salary as cash balance in a savings bank account. At the same time keep honing your skills so that you can immediately get jobs if the need arises.

DISCLAIMER

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