Life is like a mysterious box, full of people. Not all the people within the box are agreeable or empathisers to help. Medical crisis to unemployment, anything can shatter your financial safety net. Laying a firm financial safety net is essential in order to meet these unknowns with resilience and reduce their lasting effect.
Why is Financial Protection Important?
Unfortunate incidents can result in immediate, high cost, or loss of income (and therefore disrupt your financial plan). Without adequate preparation, these situations can result in:
Accumulation of debt.
Falling short on long-term savings or investments.
Accumulating only a fraction of planned corpus (e.g., for home purchase readiness or early retirement).
The reality of having a healthy “safety net” finances lets you ride out such a storm without being crippled in finances.
Key Components of Financial Protection
Emergency Fund : This is your first line of defence against unexpected expenses. just by saving a small amount consistently, you can build your fund for those kinds of “unforeseen” expenses (e.g., the medical expense). It should be an easily accessible part of the savings that should be strictly marked to pay the daily expense for several months.
How much to save: Aim for 3–6 month’s worth of living expenses.
Where to keep it: Go to a safe substitute, such as a high-yield deposit account or liquid mutual fund.
Best practices: Please do not refill the fund until you withdraw it, and do not use the fund for regular living expenses.
Medical emergencies are very expensive, and medical insurance can save you and your finances.
Coverage: Choose a plan including hospitalization, critical illness, and preventive medicine.
Family floater plans: Perfectly right for a family, provides coverage for all family members on one consolidated policy.
Top-up plans: Increase your coverage of medical insurance by paying a small sum.
Life insurance guarantees the financial security of your dependents in the event you are no longer around to take care of them.
Term insurance: It offers high coverage at a low cost, which is viable as a financial safety net.
Coverage amount: Should be at least 10–15 times your annual income.
Add-ons: Critical illness/traumatic death riders are also present with additional support.
Disability Insurance
Often overlooked, disability insurance provides financial support if you’re unable to work due to an injury or illness. This is especially the case with work activities of high risk and manual tasks.
Job Loss Insurance
This very recent invention in India is a blessing to the unemployed ones. Although disseminated to a small extent, it remains a handy adjunct for the practitioners.
Debt Management
Unhealthy debt, such as credit card debt, has no value and high rate of interest. It should be paid on a priority i.e. as soon as possible. Accumulating such debts can wreck havok on your financial plan and become a big burden in case you are fired from job !
Diversified Investments
Diversifying your investments can act as a financial buffer. In a stock market crash or economic turmoil, assets from different classes e.g., fixed deposit, physical gold and mutual fund are available for risk mitigation.
Steps to Build Financial Protection
Assess Your Risks: Finding the balance between the advantages and disadvantages of risking a gamble versus the inaction that now characterizes this moment of direct life upheaval, familial demands, and economic pressure.
Create a Budget: Make at least a portion of your own money available for the building of an emergency fund and insurance.
Get Adequate Insurance: Periodically check and reassess your insurance plan just to be sure it still suits you.
Revisit Your Plan: Life changes, such as marriage, having children or a new job, can result in a shift or change to the financial safety net.
Benefits of Financial Protection
Peace of Mind: The ability to be prepared for the unforeseen decreases stress and anxiety.
Preservation of Long-Term Goals: For the sake of your own money and possessions, interruption of attainment of financial goals will never take place.
Debt Avoidance: Under the condition that required safety measures are taken, you are absolutely not going to be stuck in debt under the emergencies.
Conclusion
Financial security is not only about what money is but also about the soundness of the systems and the tools, which enable the resolution of all life’s crises face-to-face. Getting yourself and your family’s safety is essential, by being prepared using an emergency fund, purchasing the suitable insurance, and managing the debt, these are the proof of your preparedness for any disaster that could occur.
Today is the time to design and prepare, and it is certainly the right moment to build a financial safety net before need arises.
