Cushion these three unexpected expenses

Written by Lisa Pallavi Barbora

Lisa Pallavi Barbora is a Senior Consultant for Content at WFAN. Lisa is also a founder of MoneyPuzzle.in In her earlier avatar, she was a National Writer and Consultant for HT Mint - a premier business journal in India.

June 22, 2021

Plan and be prepared is the new mantra you must live by. It doesn’t mean that you do away with the joys of spontaneity, but rather that you embrace the impulsiveness of everyday knowing well that you have prepared for the uncertainty that life may present at any time.

How can you do this?

It requires you to think deeply about the big things that can go wrong while you are busy enjoying the small pleasures of life. All of it is not foreseeable, but much of it can be pre-empted and provided for. Instead of getting bogged down with the stress of what may not workout, let’s learn to be prepared for the big yet unexpected changes in life.

Unexpected medical expenses

My 42 year old friend from North India, last year discovered that she had breast cancer. It was a sudden discovery and within two weeks, two restorative surgeries had been performed. This was followed by an eight month long chemotherapy treatment too. Then there are side effects and medicines to manage those as well. It was completely unexpected. The financial strain of medical expenses, hospitalisation and surgeries can run into lakhs of rupees in a period of a few weeks. The immediate solution for many becomes taking a personal loan to manage these expenses. However, personal loans don’t come cheap and what if the medical emergency is such that it alters your ability to earn as much as you were before the event occurred.

The way you can prepare for such occurrences is firstly, to put in place an adequate health insurance policy which will take care of hospitalisation expenses. Other expenses related to out of hospital treatment and medicines, require a health emergency fund in place. You can start building this by putting aside 5% of your monthly post tax income into safe investments like fixed deposits or liquid funds for a period of a year. Top it up as your family size or responsibilities increase.

Children’s higher education

This is not an unexpected expense in the sense that you are aware you will have to undertake it at some stage if you have young children. However, we often underestimate the value of higher education. Today, an undergraduate degree from a University in the US or UK can cost as much as Rs 1-2.5 crore over four years. This is just the cost of education, there will be incidentals like living and travel expenses as well. If you would like to send your child to a top college in India among the state universities, you need to then be prepared for your child to be at the top of their class. This might mean paying for expensive extra tuition lessons across subjects while your child is still in school. These classes can cost even lakhs a year, although the college fees itself will not be very high. If you look at private colleges in India, then undergraduate courses can cost anywhere upwards of Rs 3-5 lakh, along with incidental expenses.

Add to this the fact that inflation in the education sector can be as high as 10% a year, you will realise that planning for this event from the time your child is in primary school will help you achieve outsized and unexpected outcomes.

Unexpected job loss

This is not a scenario you want to think about, let alone be prepared for. However, in today’s times job losses are not uncommon even for those in top management. If you lose your job in late stages of your career, finding reemployment can become an ordeal. Eventually you may be able to find something suitable, but you want to give yourself the luxury of time so that you can look for a job that you like rather than jumping into the first one that is available. For this, you must have built an emergency fund which caters to at least 10-12 months of living expenses. These savings will give you enough leeway to take time to look for a relevant job if you lose the one you are at currently.

Sometimes, luck just turns sour and in those times one needs to have a financial cushion to tide through the difficult months of life without altering lifestyle to a great degree.

Planning and being prepared is not about knowing what’s next, it’s precisely the opposite. We never know what life has in store for us, what’s next is a question whose answer can surprise you from time to time. Good surprises are always welcome, but negative surprises can put a spoke in the wheel. Being prepared is about taking on these negative surprises to in the best possible manner and making your way through tough times, smoothly.

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