Deep dive into financial terms — part 1
Emergency Expenses — How do I save?
What would you say is an emergency?
Say someone you know starts having chest pains- and you need to rush them off to the hospital. Neither the patient nor the doctor would know what's wrong with them until they run tests.
Some tests?
A lot of tests?
Who knows…?
Let's take the best case scenario —
Once run the tests and problem is diagnosed and treatment starts.
The patient needs to remain hospitalized for a week and can go.
Room rent- 10,000 per day
Additional hospital/doctor/medicine expense — 10,000 per day
You need upwards of a lakh for a 5 day stay in hospital. You'd probably have that amount of money with you.
Worst case — Now, look at it from a pandemic perspective.
The 10,000 has just turned into 40,000 a day. The doctors are so busy, stressed and have had to work daily without fail since last 10 months.
Your 1 lakh just turns into 4 lakh.
There might be miscreants who'll take advantage of medical establishments to charge any price; but we're not here to criticise, instead to plan.
Do you have upwards of 4–5 lakh stashed away for a medical emergency whenever you need it.?
Do you have your atleast 1 year expenses in your account to deal with any sort of financial distress. ?
If not, read ahead to plan.
Step 1 — Create a recurring deposit.
The day you get your salary- always automate a recurring payment to a deposit.
Let's say you earn 20,000/month- atleast 10%(max 20%) should be earmarked into the RD.
Keep doing this for an year, and you would have more than a month's salary in cash for any small medical expenses.
Step 2 — Create a recurring deposit to save money for a fixed deposit.
This is simple enough- think about it. Create a RD for 5k, deposit in your account.
If you continue for a year, you will have 3 times your salary for a larger medical expense. This can be made as a 60K FD.
Step 3- Automate everything.
Your bank account should have an instruction(called standing instruction) to put money in your RD's. There's no manual work required; if you plan properly.
Step 4- Get a low cost Credit card.
A CC can act as a buffer between current and next month's salary. It can provides limits of upwards of couple lakhs with a fee of Rs. 500/1000 per year.
Use it. Till the time you're planning using first 3 steps keep a CC.
Don't use it though.
Step 5 — Throw away CC somewhere safe. Continuation of step 4.
Out of sight is out of mind. As soon as you get a card, offers start pouring in.
Ignore them.
Keep the card somewhere where it is not visible, especially never keep it in your wallet.
It is your emergency helper, till the time you're completing step 1–3.
If you follow above 5 steps, you'll be in a much better position to tackle 2021.
Share your own emergency saving tips and I will try to incorporate the same in my next article.
