In March 2020, when the COVID-19 pandemic hit, everything changed. No one expected that it would create far-reaching repercussions. Many of us lost friends, family members or people we know, and felt more directionless than ever.

A dear friend was in a similar situation where she lost her husband and was left in the dark. She was unaware of his existing financial or other assets that belong to the family. Having lost the only breadwinner of the household, my friend (along with her two kids) had no clue what to do next. Questions such as how much money they have as savings, whether there is a life insurance policy, are there Fixed Deposits (FDs) and other investments, etc., that they can rely on, had no visible answers. Another challenge was how to access these assets.

The Fundamental Problem in Households 

Even today, in a typical Indian family, money matters are still an all-men domain. Generally, men are the only earning members, and so control and manage all the finances and avoid talking about them with their family members – wife, kids or mother. Women, too, seem uninterested at times in knowing about the financial matters and think if the men are taking care of them, there is no need for them to know. Furthermore, there is a notion that kids, however mature, are better off not knowing about the financial situation at home – whether they are assets or liabilities. This is like putting all the eggs in one basket, and it is when things get risky.

Keeping investments unknown to family members may cost you dearly, and the data speaks for itself. A recent report by The Economic Times showed that thousands of crores of estimated investors’ wealth is lying idle in unclaimed accounts.

  • Rs. 18381 cr lying in unclaimed bank accounts
  • Rs. 15167 cr lying unclaimed with insurance companies
  • Rs. 17880 cr lying in inactive mutual fund folios
  • Rs. 4100 cr of unclaimed dividend lying in IEPF
  • Rs. 26497 cr Is lying unclaimed in provident fund account

So, what is the solution? It is time to mend your financial habits.

Hygienic Financial Habits 

The following simple financial habits can help secure your financial future and that of your loved ones:

  1. List all your assets and liabilities 

This is essentially a tracker that will help you keep stock of your assets and liabilities. Maintaining this list and discussing it with your family will go a long way. A list of your assets and liabilities may look like the following:

Real Assets:

  • Home – investment value
  • Gold/Silver – Investment value

Financial Assets:

  • Direct Equity investments
  • Bonds/Debentures
  • Mutual Funds
  • Employee Provident Fund (EPF) or Public Provident Fund (PPF)
  • Sukanya Samriddhi Account
  • Fixed Deposits with Banks, Post Office etc.
  • Kisan Vikas Patra/Indra Vikas Patra
  • Other investments

Liabilities:

  • Home Loan
  • Car Loan
  • Education Loan
  • Other loans
  1. List all your financial relationships

Your financial relationships include bank accounts, mutual funds, broking accounts, Demat accounts, PPF accounts, Sukanya Samriddhi accounts, investment advisors and any other such accounts that you may have. This list should have its details (account number, name of entity, branch address etc.), including the person’s contact information with whom you correspond to maintain them.

It is important to reduce these relationships to 2-3. The wider the spread, the more are the administrative issues and complexity in monitoring and control. The same will be transferred down to your family members, in case of any untoward incident.

  1. Ensure all your accounts are Joint Accounts 

If all the bank accounts are in your name, it becomes difficult for anyone in your family to access the funds in your absence. However, a joint account can be operated by either or both the joint account holders. Therefore, you should always include your wife or other family members as joint holders in all your financial relationships as a backup. Further, keep your family members informed about the account credentials and how to operate the accounts, if the need arises. 

  1. Ensure Nomination in your all financial relationships 

In all your financial/investment assets, such as an insurance policy, FDs, bank accounts, mutual funds, Provident Fund, bank lockers etc, filling in a nominee is a good practice. Nomination ensures that in case you pass on, the insurance company or financial institution will release the account proceeds to the nominee(s) without insisting upon a Letter of Administration, Succession Certificate, or Court Order.

It is also important to keep updating the nominee details. For example, if you divorce your partner, it will be essential to change the nominee (if it was your spouse) to someone else to avoid any legal battle in the future.

  1. Digitize your financial assets to your Demat account

Did you know? Your Demat account can hold more than your equity shares. Yes! Assets such as shares, bonds, mutual funds, and even insurance policies can be held in electronic form in your Demat account. This helps you gain a comprehensive overview of your assets because your Consolidated Account Statement (CAS) from the Depository will state all your financial assets in one place. This will also help your family members in the future.

  1. Draft a will 

A Will is the most essential document to create while planning the distribution of your financial assets among your family members. It has the power to distribute your hard-earned assets in your desired proportion among your loved ones, in the event of your demise. It is a legally binding document and ensures future family bonding and peace of mind. It is also essential that you maintain consistency in your nominations and allocation of assets in the Will to avoid any legal disputes later. 

  1. Keep all documents in one place 

To promote financial transparency for your family, keep all your assets and liabilities documents in one place. Your property agreements should also be placed here. This discipline will help you and your family easy access to every document, whenever required. 

  1. Discuss your financial health with your family

We earn, invest and borrow for the well being of our family. However, if we do not discuss financial matters with them, they won’t know about the family’s financial condition. Therefore, it is important for you to discuss all your financial aspects – including assets, liabilities, documents, nominations etc. with your family members. It will trigger financial discipline among your family members and the family will be better equipped in taking over the finances in your absence.

  1. Undergo an annual health check-up

Annual review of all your assets, liabilities, documents, nominations etc. is critical to ensure that up to date information is there across your accounts. Keep updating details at different places, whenever there is a change – in your address, nominees etc. Keeping things updated will help you in the long run.

  1. Bonus Habit: Insurance

The above stated good habits on financial hygiene will help you and your family a lot. In addition, never forget to buy insurance – term and medical. Medical insurance will save you from losing your savings in case of a medical emergency. And, term insurance will create a financial cushion for your family, in case you lose your life in some unfortunate event.

Life is uncertain and full of eventualities. As you never know what the future has in store for you, you must create a habit of including your family in financial matters. Knowing that your family is fully aware of the financial situation will give you confidence and peace of mind because they will be able to take over successfully and manage the financial situation going forward, in case of any untoward event.

In these difficult times, if you want any guidance related to your finances, our team would be happy to do the needful free of charge. Please feel free to reach out. 

By Manish Bansal

Manish is the Managing Director of SME Value Advisors, a platform that connects businesses with curated professionals who can deliver solutions. You can connect with him on manish@smevalueadvisors.com.

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