How to plan finances, What is emergency fund, know ‘here’

Pune:  Amid the coronavirus pandemic, lakhs of people across the country have lost their jobs. The retrenchment of employees in private and multinational companies is still going on due to the lockdown in view of security. The coronavirus induced lockdown has led to a wave of economic losses sinking many high-profile businesses as well as salaried people overnight. One of them is Chintamani, an engineer who lost a job from a multinational company.

Engineer Chintamani’s story is very touching

Chintamani worked for a multinational company for 12 years. However, coronavirus forced MNC to fire him within fractions of a minute.  During his 12 years he made many small-big investments as well as borrowed loans.  Chintamani invested his earnings in capital markets, mutual funds and FDs. He bought a house on a down payment of RS. 30 lakh and was paying RS.  40000 Per month installment. The entire financial balance was scattered within a night.  However, Chintamani started hunting for a new job and succumbed to coronavirus.  An amount of about Rs 12 lakhs was spent in the treatment of Chintamani which made him lose his accumulated capital in treatment and forced him to face the financial crisis. This example shows few of must be going through similar situations more or less.  To plan finances and get out of such a critical situation, an expert has sketched out a few points.

Way out of financial crisis

  1. According to experts, always have a standalone health insurance policy. Never depend on your company for the following two reasons. The first is when you lose your job in such a situation it won’t help you out.  Secondly  when you retire it is difficult to take advantage of any new policy. As the insurance company imposes many undesirable conditions on the retirement plan.
  2. The cloud of uncertainty is uncalled, so it is important to create an Emergency Fund. Due to COVID-19 Chintamani had to sell his house for treatment. Luckily Chintamani got a new job and started working towards planning his finances again. Chintamani was informed by his friend and financial advisor about the emergency fund.

What is an emergency fund ?

An emergency fund is said to be the amount when a person deposits it separately for future emergencies and unplanned expenses. How much amount for an emergency fund to invest?  According to experts, never keep the emergency fund in your savings account, otherwise you will spend it on wasteful things. You need to invest it in liquid funds (investment platforms like mutual funds) or get their FD made. Chintamani, after losing his job in the pandemic, has started building his own emergency fund, taking lessons. He made a list of things that he could keep with this fund.

  • Household expenses in case of job loss.
  • Tax saving investment (Rs 1.5 lakh which he invests every year to save tax).
  • Payment of taxes while filing income tax return.
  •  Paying insurance premiums including life, health and vehicles.
  •  Investment opportunities in the stock market.
  • Unplanned luxury expenses such as holidays, furniture, renovation, electronic equipment, etc.
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