5 Unexpected financial emergencies that you should be prepared for

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Have you ever been in the middle of a road trip and had your car break down unexpectedly? Or faced major home repair expenses on account of flood damages during heavy rains? No matter how good you are at financial planning, some unexpected expenses like these may crop up when you are least prepared for them.

And if you don't have a Plan B in place, your finances could take a major blow due to such emergencies. The first step to being prepared for them is to have a better idea of the kind of emergencies that may crop up. So, here are 5 unexpected financial contingencies that you need to keep an eye out for.

  • A medical emergency

    If you are young now, you may be healthy and fit. However, as people age, the body slowly develops some acute and some chronic conditions that may need medical treatment. Some, like diabetes and arthritis, may need to be managed carefully over several years with medication and pills. But other medical conditions or illnesses, like a heart attack, cancer or kidney failure, may be unexpected and sudden.

    Such medical emergencies may also require a significant amount of funds to be treated. The cost of treating cancer or performing heart surgery, for instance, may run into several lakhs of rupees. Without a financial safety net in place, such medical emergencies may run down your savings almost entirely.

    What you can do to be prepared for such emergencies:

    A health insurance plan can help you be better prepared for medical emergencies. Furthermore, you can enhance your financial safety net for this need by purchasing add-on riders like a critical illness rider, a hospital care rider or a surgical care rider along with your life insurance plan.

  • A job loss

    Job losses are fairly common, especially in an economy that is in recession. Data backs this up too, considering that at least 5.46 million Indians lost their jobs in just one month - October - last year.[1] While your job may seem secure now, there is no way to predict how things will turn out in the next 5 to 10 years. Job losses can happen to anybody, at any time.

    In case you find yourself in this situation, it may take you a few months to find another job. Or, if the job market in your area of expertise is saturated, you may have to upskill or re-skill in order to be employable again. This could even take a year or two. During this kind of a career gap, it helps to have an emergency fund that can take care of you and your family.

    What you can do to be prepared for such emergencies:

    Your best bet in case of a job loss is to fall back on your emergency fund. Experts recommend having a fund that is equal to at least six times your monthly income. Your emergency fund should be safe, liquid and accessible too, so you can consider putting your money in high-interest savings accounts, liquid debt funds, or fixed deposits.

  • The death of an earning member in the family

    The death of anyone in a family takes an emotional toll on the surviving members. It may take months or even years to overcome the grief that follows the death of a loved one. However, in addition to the emotional challenges that occur during such times, the rest of the family members may also be financially affected if the deceased person was an earning member.

    The loss of income - whether partial or total - can derail the financial situation of the surviving members of the family and make it difficult for them to meet their everyday needs comfortably. It can also set back their life goals by several years, or make it impossible for them to achieve.

    What you can do to be prepared for such emergencies:

    A life insurance plan is just what you need to protect your loved ones in your absence. With assured death benefits that are paid out in case of the policyholder's demise during the policy term, a life insurance plan ensures that your family can meet their life goals and continue living comfortably without any financial difficulties.

  • Major property damages

    A natural calamity, an accident or even a fire can cause major and severe damages to your house or your vehicle. The cost of restoring your house to its original, livable condition may go up to several lakhs of rupees. Or, in case your bike or car is damaged, you may have to spend a lot of money to repair the vehicle.

    If it is damaged beyond repair, you may have to buy a new vehicle to meet your transportation needs. All of these possible expenses can be quite steep, and if you are not prepared for them, they can use up most or all of your savings. This will leave you with little money to meet the life goals you have been planning for.

    What you can do to be prepared for such emergencies:

    You can buy a home insurance plan if you want to secure your house property against unexpected damages from earthquakes, floods and other natural or even man-made calamities. Similarly, motor insurance can help you take care of your vehicle's repairs. Alternatively, you can even rely on your emergency fund to take care of these costs.

  • Investment losses

    If your portfolio contains market-linked investments, you need to be aware of the risk that comes along with such securities. While market-linked financial products have the potential to deliver significant returns over the long term, they may also result in huge losses if the market dips by a large margin.

    If you have put all your money into market-linked assets, the risk of losing most or all of your corpus is extremely high. If the market does not move in your favour, you may face heavy investment losses. Such losses may be particularly hard to bear if you are older and closer to the retirement age.

    What you can do to be prepared for such emergencies:

    The best way to be prepared for this kind of emergency is to ensure that it does not happen to you. While you cannot prevent the market from falling, you can definitely ensure that you don't invest more than you can afford to lose in such risky assets. Instead, balance out your portfolio with guaranteed return products and fixed income investments, and take less risk as you grow older.

Conclusion

These financial emergencies are fairly common, and they could occur in just about anyone's life. So, the best way to start preparing for these contingencies is to first recognise the possibility of them happening. You can then set a budget and start saving up or investing for these emergencies.

Read next: 7 hacks to help you get into the habit of saving more

To be prepared for the financial emergencies listed above, you need to first start saving up for them. Finding it hard to develop the habit of saving more for your future? In that case, there are some shortcuts that can help you be a disciplined saver. We have a blog that goes into the details of these hacks.

Read it here

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Know More

[1] https://www.moneycontrol.com/news/business/economy/at-least-5-46-million-indians-lost-jobs-in-october-cmie-data-7668421.html
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