Precaution is always better than cure and preparing for financial emergency is one of that. Many of us might have face a situation where family member fell sick or car got damaged or sudden loss of business/job wiped out your entire saving. Now we cannot avoid any of above situation, but what we can do is that we can make some arrangements which will reduce the impact at least on the financial side. Some prefers to go with th flow for such situation and does not make any arrangement either due to lack of knowledge or just because they are lazy. We save money for our dreams, for our kid’s future and if we do not act to protect those savings then we are taking a big risk.
In the very famous book “The richest man in Babylon”, author has mentioned one principle as protecting your wealth. He has written that it is very important to protect what you have earned otherwise you keep on earning but will never be able to build wealth. We always feel that we are ready to meet any emergencies or we assume that we are among those lucky ones who never face any problem in life. In either case it is always good to review below steps that I have learned over a period of time. I am not claiming that you will be saved by taking below steps, but at least the impact will be less.
Emergency fund – If you have studied Financial planning anytime, then you might have notice that every financial planner suggest to have one emergency fund. Emergency fund is nothing but saving equal to your 3 to 9 month’s expenses depending on your job or business. If you think that you might take longer time to get another job, then go for 9 months. It is very important that you have accounted every single expense. You invest this saving in liquid investment which is easily accessible to you in any situation. However this does not mean that you use this fund to buy new car (unless old one broke down) or go for luxury vacation. The name itself explain the use of it. You do not touch it unless you face any financial emergency. This will give you peace of mind and will not affect your other savings.
Mediclaim – Now a days mediclaim is almost compulsory. People have started realizing it’s importance, but still the problem is that they go for less cover. I cannot say how much cover you should take, but take an idea from the current hospitalization expenses and we all know that it is increasing every year. Mediclaim will allow you to focus on the health of your family member instead of worrying about expenses. Many mediclaim also offers cashless which makes your life easy as you do not have to touch your savings. If possible, then go for group mediclaim from office.
Life insurance – Nothing can replace life of a loved ones emotionally. But for financially you can minimize the impact by taking the life insurance cover for the earning members. Normally it is advisable to take the cover for atleast 10 years of expenses. It is completely depend from person to person. The most important thing is to take the term insurance. Never combine investment with life insurance. They are two different matters.
Investment in liquid assets – It is very crucial that you invest some amount in liquid assets to meet any emergencies. Imagine a situation where you have invested everything in real estate and suddenly you have requirement of good amount of money for hospital expenses. If the market is down then you will lose the money by selling your asset. Also, it is difficult to sale the property quickly.
Taking care of yourself – We can avoid many problems only if we take care of ourselves. If we take proper diet and follow some exercise then we can save ourselves from visits to hospitals. You can include a walk in your daily routine or you can listen to guided relaxation music. If you give 15 to 30 minutes everyday for your body then you will feel fresh, energetic and minimize the doctor’s visit.
Get organized – Once everything else in place, it’s time to get organized for all your documents. Buy a folder and create divisions for different documents like one for mediclaim, one for investment and one for life insurance. Also create an excel file with all the details and mail it to your spouse or any other closed ones. This will help you and your loved ones to find documents easier when it is most needed.