How to be financially prepared when things break down
We all know Murphy. He is the guy who predicted that “if something can go wrong, it will”. He also said that when things start going wrong, expect more things to go wrong (OK, that was me, extrapolating on Murphy’s Law). The last month of my life proved Murphy correct.
It all started when we relocated to a new city. The planned for expenses were taken care of but it was the little emergencies that threw us off. We had planned for school admission costs, but the hidden expenses like stationery and special pattern shoes caught us by surprise. We knew we would have to spend on getting WiFi in the new house but then we had to shell out extra for premium bandwidth.
The biggest blow for me, however, came when I realised that my laptop had suffered damage in the move and I would now have to get a new one almost immediately because as a freelancer, my work depends on it. Needless to say, we had to dip into our emergency fund to meet all the unexpected expenses.
This set me thinking – the emergency fund we have (equal to about 6 months of our expenses) is for real emergencies. What we spent a part of it on was not “emergencies” in the strictest sense; rather, they were expenses we had not accounted for because of poor planning. The lesson learnt is that now I am in the process of creating scenarios and planning for them.
Here are some non-emergencies or sudden expenses that you can also plan for so that you do not deplete your emergency fund when the need arises.
Wired and wireless
We all know about ringxiety and how bad blue light is for us; but can anyone honestly say that they can live even for a few hours without their devices? So imagine yourself on a pristine beach, with the waves softly lapping at your feet and a full moon beaming down. And suddenly, a wave engulfs you. You emerge fine from the water, but your phone has drowned! It doesn’t need to be this dramatic – your phone could drown in the toilet, it could just fall at a weird angle and shatter or it could even just become a victim of a virus. You would need repairs or replacement almost immediately if not faster. This urgency also applies to expenses like new software for your laptop, new printer cartridges, maybe specialised keypads if you start showing signs of carpal tunnel syndrome.
Action Plan: Have an electronic upgrade fund. Set aside a small amount for this. Typically a half-decent mobile costs anywhere upwards of ₹ 10,000. A good idea might be to build an ‘Electronics fund: Getting to about ₹ 50,000 slowly saved into this fund might be helpful.”
Cars are also machines and even the best-maintained machines can breakdown. Or meet with an accident that damages parts not covered by the insurance. I was once driving through inches of water during the rains and hit metal barricades which had submerged bases. The sharp edges of the metal bases literally shredded my tyres. I had to get all four replaced and this was something not covered by insurance. Another time driving through the fog I drove into a ditch and had to pay for a tow truck the next day.
Action Plan: Take membership of an auto repair and recovery service to help in emergencies. These services aren’t very expensive, however, they do hit your credit cards in most cases. Call this a ‘ Repairs’ fund and one month’s worth of expenses can take care of these.
Weddings, anniversaries, birthdays and funerals – all can put a dent in your pocket. Attending a wedding involves more than just the cost of the travel and gift – you will also have to spend on appropriate clothes for yourself and your family. Similarly, a tragedy in the family can mean expenses on ceremonies associated with the funeral rituals and customs. Anniversaries and birthdays can also mean shelling out for gifts.
Action Plan: Create a gift fund and save a fixed amount every month. Alternatively, you could also consider gifting your close family cash or even money invested in a fund versus any other physical item they might not need. When there are emergencies a huge cost is tickets itself, additional to your emergency fund, make a quick calculation of how much a trip to see your family usually costs and look to build that as additional savings in liquid funds.
Additional to your 6 months worth of expenses, add an ‘electronics fund’. Expenses that can set you back but easily saved for.
A fund for auto repairs is equally important.
Also, build a fund for family emergencies that mostly cover trips, to tend to family affairs.
Whether you need an emergency fund or a not-so-serious but critical fund, get investment advise tailored to your own needs on the Basis app. Download the app here.