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Without Financial Planning in India, Can You Handle Life’s 3 Biggest Unpredictable Challenges?

Life is full of uncertainties, and while some events are predictable and manageable, others are not. These unpredictable events often require a significant amount of money to manage. To handle these uncertainties, we need a solid financial plan. In this blog, we’ll explore three key life events that often disrupt financial stability and discuss simple yet effective financial planning tools to prepare for them.

1. Temporary Job Loss

No job or business is completely secure. Whether due to layoffs, reduced sales, sickness, or a global crisis like COVID-19, earnings can come to a halt unexpectedly. This temporary phase leaves us with ongoing expenses but no income. Here’s how to prepare:

What Happens Without A Plan?

  • You may break your savings.
  • Take loans at high interest rates.
  • Rely on others for financial help.

The Solution: Emergency Fund

An emergency fund ensures you can manage your household expenses during tough times without breaking savings or taking loans.

How Much Do You Need?

  • Experts recommend keeping 3 to 6 months of family expenses aside.
  • Use an Emergency Fund Calculator to figure out how much emergency fund is enough for your situation.

How To Save For It?

  • Open a recurring deposit in your savings account.
  • Save as little as 4% of your monthly income for 5 years.
  • For example, if you earn ₹20,000 monthly, aim to save ₹800 per month for 5 years as your emergency fund of ₹60,000

Where To Keep An Emergency Fund In India? 

Keep it in a savings account or a liquid fund for easy access during emergencies.

2. Health Issues or Accidents

Unexpected illnesses or accidents often lead to unplanned hospital visits. Medical bills can be overwhelming, forcing families to sell houses, gold, lands, break savings, or take loans.

What Happens Without A Plan?

  • Using savings meant for other important goals.
  • Delay of other important life events like buying a home or education or marriage, etc.
  • Bankruptcy in extreme cases.

The Solution:

Health insurance is a must-have financial planning tool. It covers your medical expenses, reducing the financial burden during emergencies.

Health Insurance Benefits:

  • Covers hospitalization bills.
  • Reduces financial stress during emergencies.

How Much Cover Do You Need?

A cover equal to your annual income is good to start with but 2 times is ideal other than metro cities( minimum 3 times). For instance, if you earn ₹3 lakh annually, get health insurance of ₹3 lakh minimum, the more the better.

How Affordable Is It?

  • Premiums are typically less than 3% of your annual income.
  • For ₹3 lakh cover, the premium may be as low as ₹582/month.

Source: Policybazaar

Use a Personal Insurance Analysis or Leverage Insurance Analysis tool to choose the right policy.

3. Untimely Death

Life expectancy in India is around 70 years, but untimely death is always a possibility. If a family loses its primary earner, the financial impact can be devastating.

What happens without a plan?

  • Children may need to change schools or stop education.
  • Family might have to move to a cheaper rented house.
  • Spouse or child may be forced to take up a job.
  • Struggle to meet daily household expenses.
  • Delay or abandonment of financial goals like higher education, buying a home, or saving for retirement.

The Solution:

Get a Term Insurance Policy.

Term Insurance Benefits:

  • Financial Security: A term cover of 15 times your income (e.g., ₹45 lakh for ₹3 lakh income) ensures your family’s stability in your absence.
  • Income Replacement: Depositing ₹45 lakh in a bank at 6% interest can give ₹2.7 lakh annually, matching your income.
  • Covers Expenses: Helps maintain the same lifestyle, like daily costs, children’s education, repay home loan and other financial needs.
  • Premiums are affordable, usually less than 3% of your annual income.
  • For ₹45 lakh coverage, a 30-year-old may pay only ₹774/month. 

How Much Does It Cost?

Source: Policybazaar

Use a Term Insurance Calculator to find the right coverage based on your financial needs.

Note:
Bank deposits are just an example to explain income replacement. We don’t recommend them as the best option. A financial advisor can guide you to better investments that can grow your money and beat inflation.

How Much Will This Cost?

Let’s consider a 30-year-old Zomato delivery partner in Siliguri, West Bengal, earning ₹25,000 per month. He is married to a 28-year-old wife and has a 2-year-old daughter. Based on Policy Bazaar’s premium calculationswe have calculated the premiums, screenshot attached.

ToolAmount/ CoverMonthly Cost% of Income
Emergency Fund₹60K₹8003.20%
Health Insurance₹3 Lakh₹5822.33%
Term Insurance₹45 Lakh₹7743.09%
Total₹21568.62%

For less than 9% of your income, you can secure your family’s financial future and tackle these unpredictable events with ease.

Why Financial Planning in India is Essential?

For middle-class families, financial uncertainties can disrupt long-term financial goals. Creating a robust 360 degree financial plan with tools like emergency funds, health insurance, and term insurance ensures financial stability.

How to Start Your Financial Journey?

  1. Use an Emergency Fund Calculator to know how much you need.
  2. Compare health and term insurance plans with the help of a Financial Planning Calculator.
  3. Seek financial advisory services for personalized guidance.
  4. Review your plan regularly using analysis tools for adjustments.

Final Thoughts

Unpredictable events are part of life, but with the right preparation and financial planning in India, you can handle them confidently. Start small, use the right analysis tools, and make use of affordable financial advisory services to create a robust financial plan for your future.

Take charge of your finances today, because life may be uncertain, but your preparedness shouldn’t be.

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