August 29, 2025 / 13:02 IST

"Overlooking insurance, savings, taxes and succession planning can undo years of carefully planned wealth creation strategy." ~Vivek Banka

We are as strong as our weakest link is an often-used proverb that applies in various facets of life, whether security, work, sports and so on. This term is also very apt for managing our wealth. There are umpteen instances where one wrong step or bad investment undoes all the good of other, well-performing ones.

Let us take some common situations and gauge the importance of insurance, savings and tax efficiency in modern-day wealth planning.

Insurance

We are but one illness away from bankruptcy - a statement that should resonate with every individual who doesn’t have proper and adequate health insurance.

Stories abound of families who have had to sell their family silver or liquidate assets in panic and distress to meet medical exigencies, leading to severe erosion in capital and in some cases, leaving them neck deep in debt. This sets these families back by years in their quest for meeting basic financial goals, let alone strive for financial freedom.

Tax efficiency and estimation

“In this world, nothing is certain except death and taxes," is a quote attributed to American statesman Benjamin Franklin.

With the dynamic nature of taxes in India and the different treatment of tax for different instruments, taxation is again extremely critical to wealth planning and creation since what matters at the end of the day is what you can keep after paying all taxes.

Most if not all gains that we see on our investment portals are pre-tax and we often don’t factor in how big a bite the government would take out of those gains.

A well-made financial plan needs to estimate taxes so that the effective tax rate basis your tax slab and capital gains is the most efficient. For example, for short-term parking of funds, bank deposits or liquid funds work well with low individuals in low tax brackets, while arbitrage funds could work well for those falling in higher tax brackets.

Wrong estimation of taxes can lead to big penalties and interest and also sudden and large outflows during tax filing season, making it imperative to chart out a proper and efficient tax plan that should be evaluated every quarter with necessary advance tax filings.

Savings

At the end of the day, savings is the raw material for our wealth and if we don’t save, we don’t create wealth.

A simple rule that can be followed is the 50:30:20 rule which says that a maximum of 50 percent of one’s earnings should go towards essentials, 30 percent towards comforts and/or luxuries and finally a bare minimum of 20 percent savings.

Also, one should ensure that not more than 50 percent of income goes towards meeting equated monthly instalments.

Please note that these  numbers are advisory in nature. Ideally, the lower the expense the better as that would mean more money saved, and money saved early on gets more time to compound.

Emergency fund

Having reasonable liquidity to tide over sudden liquidity needs due to unwanted expenses or income losses is important as it helps avoid panic/distress sales.

For instance, when individuals faced job losses during the Covid-19 pandemic, those who did not have an emergency fund had to sell their investments at deep losses. Such situations generally always come in droves and, hence, it is imperative we have an emergency fund set up in the form of liquid investments to successfully manage these kinds of events.

Nomination and wills

Ensuring that our investments are nominated and in certain cases - especially where there are liabilities, joint families or non-financial assets—a will is also helpful.

This, coupled with proper communication to our dependants, is very important to ensure our loved ones benefit from our hard-earned savings in the case of an unfortunate event.

Financial and wealth management encompasses more than simply overseeing assets - each element plays a vital role in guiding individuals toward their financial objectives, securing a comfortable retirement and ensuring essential protection for dependants.

Vivek Banka

Founder, GoalTeller

First Published: Aug 29, 2025 01:02 pm | Moneycontrol