Life is very unpredictable. We may face uncertain or unforeseen events in life. It is always prudent to be prepared for such kind of situations. It is crucial to get prepared in advance for any uncertainty which may cause a sudden burden on our finances. Prepare yourself well in advance by following these 4 things.
- Emergency fund: We should keep aside the amount equal to at least 3 to 6 months of our monthly expenditure including our EMIs. This money can be kept in good quality liquid funds, Bank FD or RD. We should upgrade the amount in our emergency fund as and when our expenses increases. One should consider the provision of the Emergency fund as an expense and not as saving. It means we should never spend this amount elsewhere except in an emergency.
- Buy term insurance plan. — many times it is found that individuals are not at all insured or are under insured. Insurance planning is very important before one start thinking about investments. Thumb rule is that you should be insured up to 10 times of your annual income or your insurance cover should be your annual expense×55. Most of the times we don’t take into account the situation where we can be unable to work actively due to any sort of disability. This scenario should be covered as our income may be stopped for some period or permanently. Disability rider is the most important rider which must be attached to the term plan or can be taken with accident Insurance plan.
- Health Insurance: Many times when we are young we postpone buying health insurance plan which can be turned out to be our biggest mistake. Medical inflation is very high and it can make a big hole in our saving at the time of health emergency. Apart from the health cover offered by your employer individual should have a separate health insurance of his own. One should take a family floater as a base plan and stand-alone top-up the plan for husband and wife. This arrangement helps to save in premium amount and offer large health cover at very reasonable cost.
There are other insurances also such as fire insurance, theft insurance, home loan insurance, travel insurance, etc. to protect our self for the sudden financial crises.
Above mentioned things are considered as hedging against loss.
But what Steps can we take to mitigate the sudden financial burden which we are facing right now?
Can we tackle the situation by provisioning in our home budget ? Yes, we can. In such situation we should focus on curbing our expenses and increasing our savings. Each penny saved can help us to get out of this situation faster.
Check the following pointers to make savings possible
- Write down your each and every expense. Penning down will help you to know where your money is going.
- Expenses are of two types: first is fixed expense such as rent, society maintenance, school fees, fixed medicine cost, payment to maids, property tax. Insurance premiums etc. And the second one is variable expenses, those are food, conveyance, electricity, telephone, entertainment, groceries, etc. First, make a provision for fixed expenses and try to reduce your variable expenses.
- Expenses can also be categorized as Needs and Wants. You should understand what is your need in this difficult situation and what expense is for your want. Try to avoid spending on hoteling, short vacation, outings, cinema, parties, etc. Only focus on your Needs.
- Postpone your big purchases until you come out of this situation.
- Find the ways to save in your day to day life. Try to use public transport. If you have postpaid mobile connection change it to prepaid which helps to keep an eye on your mobile uses.
- Pay your utilities bills on time to avoid penalties. Keep the last date of payment in mind. Note it down on the calendar. Know the energy savings tips and save money on the electricity bill.
- Instead of credit card start using the debit card by which you can see the bank balance after every expense.
- Start paying by cash if needed as it pinches more when we spend hard cash rather than plastic money.
- Check your habits. Avoid wasting your hard-earned money on smoking and drinking. Smoking and alcohol not only kills you slowly but it kills your family as well. Focus on your health which in turn help you save medical costs in the future.
- Don’t get carried away with the surrounding people, avoid the tendency of the showing off.
- Try to find alternate income resource to fund your expenses. You can covert your hobbies into classes, can take up freelancing project, tutions, etc.
- Most important step is take help of your Financial Planner. Consult him/her and take necessary changes required in your Financial Plan.
Meanwhile, try to improve your technical and educational skill to take up a higher paid job. And most importantly be patient and confident. Take care of your health and don’t get panic. This phase is temporary and will go away soon while implementing the above-discussed points.