Categories: Society & Culture

What to Avoid in Personal Financial Management- Experiences and Lessons-II

Contingency Planning
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Often, when we start earning, and are having some good hikes, promotions, many of us(not all) tend to treat the times as very good, and get complacent, to think that these times will forever last.
We merry, play, have good food and fun. Often, we overspend.
All this is not bad, but what is not good is that we do not think in terms of “bad days”.
What if one loses job? What if one marries, and have kids, and expenses suddenly shoot up? What if someone in the family gets mentally or physically ill?
Some people think that thinking in such terms breeds negativity.
I have seen a few people who do not get Life Insurance policy because they think that insurance and like talk breeds negativity!

Well, optimistic thinking is good. Yet, one also needs to plan for days which might be tough, exhausting and prove to be a drain on our lifestyles and day to day living.
What I am talking about is “Contingency Planning”.
Now, experts have a diverse point of view on such planning funds.

As per some, keeping 6 months’ salary is sufficient. Some say: Keep 3 to 4 Lakhs Indian Rupees(or its equivalent in other countries and currencies).
Then, one also needs to have at least one mediclaim policy ready. Such policies, though suspect to heavier charging by hospitals, provides a cushion in times of hospitalization and sickness.

So, a rough calculation will show:
Expense needed for emergency expenses- 6 or 7 months salary: For a person earning 50K per month in India, this will mean almost 3 Lakhs spare.
Now, this could be difficult for some to maintain. In such cases, one can plan to start with 10,000 INR initially, and then add even amounts as low as 100 INR in that account.

Little earnings like selling old equipment, selling to ragpickers etc can also be added to such funds.
Adding a fund for annual mediclaim will add 20,000/- per year more.

Keeping such funds might seem saddening, but is helpful in longer run.

——- To be continued ——-




  • PEEUSH TRIKHA

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