Life is shrouded with uncertainty and unexpected events. While we try to prepare for these events the best way that we can, sometimes we are successful and sometimes we are not. However, irrespective of the outcome, we must always try to anticipate extenuating events and mitigate the impact of the same on our family and our finances. If we plan our finances well, then we can survive the tough times. Below, we discuss some adverse circumstances for which an individual must always plan.
Prepare for the known ‘unknowns’
If you had to sit down and enumerate the incidents that could impact you personally and cause deviations in your financial plans, what would you write? For most people, leading this list would be the risk of a job loss. We all understand that economies go through cycles, intermittently witnessing ups and downs. During the downturns, the threat of a job loss often looms large. The loss of a job can have multiple impacts on an individual. Not only does it reduce monthly income, but it can also derail you from your financial plans and affect your mental health and that of your family. Thus, you need to ensure that a certain part of your savings are liquid, safe and can easily meet your expenses for at least a period of 6 months, in case of loss of income. Usually, following a close second are health emergencies. Many of us are highly health conscious. We are particular about the food we eat and work hard to maintain our physical fitness. Nonetheless, there are no guarantees in life. Despite the healthy lifestyle that we try to maintain, disease is something that can creep up on us. This could result in hospitalisation costs, it could mean recurring medical expenses and it could also result in loss of income due to an inability to continue employment. Preparing for such a situation could include buying the relevant insurance policies and creating an investment corpus specifically for such an emergency. There could also be many other extenuating circumstances ranging from a sudden need for cash to the untimely death of the earning member of the family that could have a severe impact on our financial plans.
“Being forewarned is forearmed”
An old saying that tells us that having prior knowledge of possible dangers or problems can give us tactical advantage and help us mitigate the negative impact of such events. However, just knowing about these exigencies will not help you mitigate their impact. It requires judicious financial planning and a disciplined approach to investing. However, planning for these emergencies can be challenging for multiple reasons. First, the time horizon is uncertain – you do not know when you will need the money. Second, while you need to build a fairly robust corpus, you also need to maintain some money in liquid and low risk instruments. A financial planner can help you plan for these eventualities by creating a financial plan that is agile and yet tethered to your risk-return requirements. Due to their knowledge and experience, financial planners are aware of most of the products that are available in the market and can recommend the products that can help you strike an optimal balance between liquidity and growth.
