CONTINGENCY PLANNING
PLAN B FOR YOUR SUCCESS
CONTINGENCY PLANNING - YOUR PLAN B TO FACE UNEXPECTED
EDITORIAL NOTE DATED 26.03.2020 :
With the spread of pandemic corona virus CO-VID 19 all over the world and national lock down for 21 days announced by the PM , now economic slowdown or recession looks real on our face in coming months and in the financial year . We hope that government will take necessary steps to minimise the hardship arising out of the disease and economic effect of the spread of pandemic . We hope for the best and yet we have to be prepared with our PLAN -B in case of contingencies .
One has to be prepared for loss of income due to fall in interest rates , inflation , loss of jobs for self or family members . Under the circumstances , we have to tighten the belt and be prepared to face the worst . We hope the article published earlier will be of use to our readers now .
EDITORIAL NOTE DATED 03.08.2019 :
We had written in March 2019 about the delayed payments / salaries in some of the major corporate , especially public sector undertakings . Now pessimism on Indian economy is looking more real with many major sectors like NBC , Auto , Infrastructure and many other core sectors showing lower or negative growth . In Equity markets , many shares have touched 52 week lows . Mutual Funds investments are shaky . Even debt funds are looking risky due to their exposure to NBC linked bonds .
The immediate effect of any recession is borne by the employees by way of job cuts , lay offs and delayed payments . The lowering of interest to boost economy results in lower income for senior citizens who depend their interest income . Businesses will fail leading to higher NP As to Banks . Investors wealth will erode .
We hope Government will take concrete actions to stop the trend and recessionary tendencies are purely temporary . While we don't want to be unduly pessimistic , it is prudent to brace for any eventualities and plan for emergencies .
In the times of crisis and uncertainties , it makes more pertinent to be aware and plan for any contingencies that may arise , even if one is in comfortable financial position now . Hope our article below will help you to plan for tiding over any contingencies you may face .
EDITORIAL NOTE :
Dated 14.03.2019 : We are hearing news about some of the major corporate , including to those belonging to public sector delaying payment of salary / pensions . BSNL was in news for deferring salaries due to paucity of funds . News papers reported that another public sector defense company HAL had to borrow money to pay salary dues .
In January there was a news of Air India delaying the salaries of its staff. Further recent reports suggest unemployment rates peaking now in India .
In the times of crisis and uncertainties , it makes more pertinent to be aware and plan for any contingencies that may arise , even if one is in a blue chip company and salary looks assured . Hope our article below will help you to plan for tiding over any contingencies you may face .
MEANING OF CONTINGENCY & PLANNING :
OUR INCOME PATTERNS
Here we discuss different income patterns each one has . While some are having regular , almost fixed monthly incomes like salary and pension , others like business men , professionals ,farmers ,movie actors , contract laborers may not have so regular income patterns .Some may have a minimum regular income , topped with performance /sales bonuses . Some may have regular investment income like interest income , rental income or stock market investment . Those who do not have fixed regular income still may have an average foreseeable income with their past experience . But all can have contingencies and they may not be able earn what they were earning all the earlier days or have an unforeseen expenditure beyond their normal spending .
CONTINGENCIES
Contingencies come in many forms . Salaried person may lose job .Pensioner may die leaving family members in financial stride . Professionals may lose demand for their skill which may erode their income Businesses can suffer loss while farmers may have multiple risks like flood ,drought ,diseases for crop , price fall etc . Interest rates may fall affecting those who are living on interest income .Stock market turmoil may ruin the investment .Thus each profession has its own risk .The risks involved some times may be so huge ,making the person to commit suicide as one may be unable to cope up with the crisis .While accidents & health issues are universal and can effect any person or family .Medical bills may run in lakhs which may add to the income loss during hospitalization Unexpected expenses like sudden increase in education expenses are not uncommon . Huge marriage expenses are other dreaded expenses one fears .
WHAT IS CONTINGENCY PLANNING ?
CONTINGENCY PLANNING : Contingencies can come in many ways and one has to be prepared to face the emergencies with least hardship . While we may not be able to stop the happenings ,we may try to reduce the impact of the situation at our best. We may not be able to stop job loss accident ,hospitalization or death .Neither we may able to stop market slide, loss of rents or fall of interest . But we can be prepared to face such eventuality by planning in advance .Crisis Management is not contingency planning . Planning starts when we are in good times and when we are having normal income and expenditures are in our control . Goal of the planning is to prepare ourselves for future unexpected troubles we may face .
Before starting planning ,we should first assess the position we are in with regard to our job ,position ,business or profession ,risks associated with them ,our present financial position and the alternatives available to us .We can list risks associated in our position and the likely impact of the same on us and our family if risk materializes. The likely time required by us to come out the crisis and the steps we can take to mitigate can also be analyzed .The financial support we may require during the crisis period may be calculated and our strength to tide our the crisis may be evaluated .To strengthen our financial position ,here are some of the steps we can take :
THE 5 STEPS OF CONTINGENCY PLANNING
Contingency Planning Process :
1. BUILD EMERGENCY FUND
If you can keep your expenses within your income,you can start building emergency fund out of your savings .Build it to cover at least three months of your expenses .Such emergency fund will help you in case of unforeseen job loss , accident or hospitalization etc .Emergency fund will give you a breather till you restart your earning .
2.. TAKE INSURANCE
Treat insurance as part of needed expenses .It is another way of having emergency fund in case of accident ,hospitalization etc . Further insurance premiere to be paid at younger age is much cheaper than taking them as you get older. Further life insurance is also away of saving for future . It also helps in managing your income tax in case you have to start paying .But do not over insure your self than what premium you can afford . Insurance should serve only as a vehicle of insurance and not as investment. There are better avenues available for investment than taking insurance policies . Returns on money invested in life insurance is modest only as insurance companies deduct risk premiere from the money invested and service charges are also taken out .Visit INSURANCE page for knowing more .
3. HAVE CREDIT CARDS
Take a credit car and it will help you in emergencies ,other than serving as a payment medium .Chose a card with least or no fees . Many such cards are available.Utilize the cards for buying what you need . Never buy a thing because you have a credit card and it allows to pay .Never use credit card for drawing cash as charges are heavy .Instead utilize debit card for drawing cash .Keep credit card for using it in case of emergency .You can smartly use credit card for your advantage. Visit CREDIT CARD page for further details.
4. UPDATE YOUR SKILL : If you are in job , business or profession ,staying up to date with the skill is needed for remaining competent in the field .Being updated in any field will make it easier to shift to the new emerging opportunities in case of losing the present position . If you are fired from the existing job ,your chance of landing in a new job will increase if you remain updated . Similarly if your business is not making headway with profit, you van turn to newer opportunities If your profession is losing charm, you can try for alternate avenues . All this will be possible if you remain updated about the situation in your industry or profession .
5. HAVE A SECOND INCOME - INVEST :
You will be left with your gross savings after paying for your needs ,insurance and taxes .Out of which you will first build your emergency fund which is to be touched in emergencies only i.e when your income stops flowing in or medical events /accidents . Balance amount you save every month is the amount you can save or spend now for your indulgences . Choice is yours and use it judiciously .You have to balance between today's pleasures against future dreams .One need not sacrifice any one for the other .You may have both in a limited way .Remember future security will also contribute to today's peace . Now some tips on both viz spending vs investment .It is better to set aside certain portion of savings for investment before indulging in luxuries for today .Here are some of the ways you can start investing to earn a second income
1. Your first investment is from your emergency fund . Once you have ideally saved fund equivalent to three months of expenses , you can invest in a liquid fund where you can draw the amount in a day's notice . You can make a fixed deposit with a bank which would give fixed return . You can close your fixed deposit any time by losing a small portion of interest earned or you can draw against it a loan where you may have to pay . Other options are investing in cash / money market related mutual funds apart from leaving it in your savings bank accounts .
2. You can begin your journey of investment by simply opening a Recurring Deposit account with your bank for a fixed number of years .On your instruction ,your banker would take the fixed amount to the account every month .Recurring deposits normally fetch the same interest rate as that of fixed deposit for the same period .It is a hassle free way of saving and you may save without feeling pinch of it .You can make Recurring deposit proceeds as margin for your future purchases like cars , two wheeler ,home loan etc . You can make maturity date coinciding with your planned purchases of such items. You can also try other fixed income investments and to know more about them , CLICK HERE
3. There are other investments which can give better returns than bank deposits ,but they carry risks of losing both investment and interest . As your savings improve , you can start trying those options . Before venturing to such investments which are classified under HIGH RISK category , learn about them .You can read our INVESTMENTS , MUTUAL FUNDS AND STOCK to have basic knowledge on such avenues .Remember they carry high risk of losing entire investment .Know risk mitigating techniques before investing in such schemes .
Long term Investment goal is to earn investment income at least equal to pension you receive so that your evening life will run on twin Tyre .
As investments carry risk and needs attention to make them profitable , below are some of the tips for managing investments
10 TIPS FOR INVESTING UNDER CONTINGENCY PLANS :