Why insure
On the contrary, 45-year-old Vikas Kapoor, a self-employed professional, is very pleased with his own decision to buy a health insurance policy. It not only paid his medical and hospital expenses but also other incidental expenses related to his illness, such as travel, lodging, and temporary loss of income. Indeed, incidental costs contributed around 35% to the total expenses related to his major illness. It can cost as much as Rs 8 lakh to Rs 10 lakh to treat cancer. Without his health plan, which Kapoor bought at a reasonably early stage in his life, this health emergency would probably have derailed his financial goals.

India spends around 5% of its GDP on health, and around 70% of this spending is out of pocket. Out-of-pocket medical expenses can be a major drain on your resources, and leave you financially severely constrained, if not devastated. Health care and treatment are no longer cheap. As health care technology advances, its cost is on the rise. This cost can even be higher if you need constant or long drawn out treatment for a chronic ailment. Thus health insurance is necessary to protect you from the financial shock that could result from a medical emergency.

A stitch in time
Health insurance has become extremely important today, with the increase in not only medical costs, but also the incidence of lifestyle diseases. It’s therefore critical to invest in adequate health cover for your entire family. Even if your employer provides you health insurance, it’s prudent to buy a health plan that ensures continuity of coverage and also acts as a top-up. That way, a change of job wouldn’t leave you uninsured for any length of time, and nor would retirement. Remember, it is difficult to get fresh insurance cover after you cross 45 years.

Unfortunately, Indians are still not as smart about funding medical treatment as they might be, and tend to bear most of the costs out of pocket. Health insurance in India is at a nascent stage, and funds only about 2% of the country’s total healthcare spending.
      Most people put off buying health insurance, thinking it’s too early to buy it. Some live in denial of the possibility of serious illness. Not surprisingly, many of these people later find themselves struggling to pay medical bills, and are forced to dip into savings set aside for their child’s education, or their own retirement.
      It pays to start early when it comes to buying health insurance. If you procrastinate, and illnesses crop up later, when you are uninsured, you will end up paying high premiums. With increasingly stressful lifestyles, even the young are prone to ailments such as heart attacks. Health insurance provides adequate protection during such medical exigencies.

What to buy
There is a considerable variety of offerings in the health insurance market today. Start your search for the right health insurance plan by first defining your needs. What are the medical emergencies that could hit you financially?
After you have narrowed down on the products that will give you the best possible cover and benefits, aim for the one that guarantees the longest coverage.

Keep up with changing times
The reality of out-of-pocket medical expenditure will have to change. Otherwise, wealth accumulated over a lifetime could be lost in a single episode of illness. The problem with illness, be it the result of disease or an accident, is that the treatment substantially pushes up your expenses while simultaneously hampering your ability to earn. Buy health insurance at an early stage of your life, so you are cushioned in case of a shock.

For your dream home
Housing loans are considered good loan as you are investing in an asset. Basically, the value of the property will appreciate so that you can earn better return in future. Now you can wait and watch before you take a home loan given that property may witness further correction.

Amar Pandit, a certified financial planner, said, “Home prices in some places have dropped by 10-15%. Though transactions are down by 90% even in a city like Mumbai, builders have not dropped prices but are doling out freebies such as waiver of stamp duty, free parking, additional fittings in the house etc.”

Once prices stabilize, you can determine the kind of loan you will service. Then you can also be classified as a defaulter under the Depreciation of Security Clause. This is particularly relevant when real estate prices begin to fall. Consider you have invested in a house of Rs 50 lakh and the loan amount is Rs 42 lakh. If the property prices fall below Rs 42 lakh, the bank can ask for some additional security or ask you to pay the difference. If you cannot do so, the bank will classify you as a defaulter. Consequently, the bank can take possession of the house or flat. If your rentals are high, it may make financial sense to buy a house. So, you can wait for 6 months to a year to see the direction of real estate prices before you take a decision.

For the latest car
If you are a business person, it will make sense because you get depreciation as well as interest deduction benefits; so your overall cost of the loan gets subsidized because of these benefits. But if you are a salaried person, you should evaluate the actual cost of the loan. Dealers and banks give you upfront cash discounts or a reduction in EMIs. In the current situation, it is better to avoid a car loan as the value of car depreciates faster than the principal repayment.

“If you still want to buy a car, ensure you are able to fund more than 50% of the car value through your savings,” said Swapnil Pawar, director Park Financial Advisors.

For a consumer durable product
Buying your washing machine or an LCD television on an EMI scheme has become very common. But once you sign up for such a scheme, chances are you get into an EMI mode or a perennial consumption mode. “The processing fee, in a way, is an interest payment which can be as high as 20% on such schemes. It is better you save for over 6 months and fund these durables yourself,” Mr Pawar added.

Often, the consumer durable stores advertise zero interest rate schemes to woo potential buyers. Then they charge a processing fee, which is actually the interest that you end up paying in advance. So, ensure there are no processing charges — only then is it a true interest-free loan.

For higher education
Higher education can be classified as a good loan as it enhances or builds your career, which is also an asset.

“An asset can be defined as anything that can possibly put more money in your pocket and education helps you do that. So, a loan to enhance your skill sets or to make you more literate is always a good loan. But that does not mean just adding degrees for the sake of adding but actually using it,” Mr Pandit added.

Ensure that your EMIs are below 30% for all loans other than home loans. The more you get into debt the lesser control you have over your money and your future. If you are a young borrower it particularly pinches as you may lose out on some hefty long-term rewards because of compounding effect. As of now, home loans or education loans which help build assets or skill sets are more advisable.

1. Time Horizon and Goals:
   It is important to understand what your goals are, and over what time period you want to achieve your goals. Some goals are short term goals those that you want to achieve within the year. For such goals its important to be conservative in one’s approach and not take on too much risk. For long term goals, however, one can afford to take on more risk and use time to one’s advantage.

2. Risk Tolerance:
   Every individual should know what their capacity to take risk is. Some investments can be more risky than others. These will not be suitable for someone of a low risk profile, or for goals that require you to be conservative. Crucially, one’s risk profile will change across life’s stages. As a young person with no dependents or financial liabilities, one might be able to take on lots of risk. However, if this young person gets married and has a child, he/she will have dependents and higher fiscal responsibilities. His/her approach to risk and finances cannot be the same as it was when he/she was single.

3. Liquidity Needs:
   When do you need the money to meet your goal and how quickly can you access this money. If you invest in an asset to and expect to sell the asset to supply you funds to meet a goal, then please understand how easily you can sell the asset. Usually, money market and stock market related assets are easy to liquidate. On the other hand, something like real estate might take you a long time to sell.

4. Inflation:
   Inflation is a fact of our economic life in India. The bottle of cold drink that you buy today is almost double the price of what you paid for ten years ago. At inflation or slightly above 4% per annum, a packet of biscuits that costs you Rs 20 today will cost you Rs. 30 in ten years time. Just imagine what the cost of buying a car or buying a home might be in ten years time! The purchasing power of your money is going down every year. Therefore, the cost of achieving your goals need to be seen in what the inflated price will be in the future.

5. Need for Growth or Income:
   As you make investments, think about whether you are looking for capital appreciation or income. Not all investments satisfy both requirements. Many people are buying apartments, but are not renting them out even after they take possession. So, this asset is generating no income for them and they are probably expecting only capital appreciation from this. A young person should usually consider investing for capital appreciation to take advantage of their young age. An older person however might be more interested in generating income for themselves.