The only thing constant in your life is change and change also brings uncertainty in your life. While you may not be able to prevent yourself from all forms of uncertainty, you can surely prepare well in advance for any kind of financial uncertainty that may occur in the future.
None of us can comment what’s going to happen 5 10 years later in our personal and professional lives. Our lives are completely uncertain filled with both positive and negative moments. However, uncertainty becomes a concern when it comes to finances.
How do you know your job will last for the next 10 years? What if there are unexpected expenses such as medical expenses, accidents, disabilities, etc.
Here are 3 approaches that can help you deal with financial uncertainty.
1. Start planning for uncertainty
Just like how you plan for your financial goals like buying a house, new car, starting a business, etc. you also need to plan for uncertainties. Let’s say you want to accumulate Rs 1 crore in the next 15 years. You will have a plan of how much your regular investments need to be and where you are going to invest.
To plan for uncertainties, you will need to add a buffer amount of say Rs 10 lakh additional, which means you, will need to invest in such a way that you have accumulated wealth of Rs 1.10cr. This will cater to hypothetical but possible scenarios such as a temporary job loss due to crisis, repayment of an unexpected loan or sudden expenses. For major uncertainties in life like a critical illness, accidental disability or death you will need to buy and continue with a comprehensive protection plan. This plan will ensure that you and your family members are secured in case of a loss of income due to death, disability or disease. By choosing a comprehensive term plan you get complete security and peace of mind at a low premium rates. Calculate how much life cover you need and your premium here
2. Have an uncertainty fund
Simply allocate a portion of your monthly earnings just to uncertainty. It need not be much and could be as low as 5% – 10%, but when you allocate money specifically to uncertainty, at least you are satisfied that you are catering for every eventuality.
3. Plan for taxes and inflation
Taxes and inflation affect your financial goals. No one can predict the increase in inflation and tax rate which will occur in the next 15 years. While choosing an investment option you should have a fair idea of what would be your returns. The unexpected taxes and inflation may impact these assumptions. For example, if you invest in real estate or gold you can only look at the past trend and make an assumption but if its value decreases you don’t have the option to switch or make any alterations. Also, it becomes difficult to liquidate these investments immediately during crises. Taxes impact your expected returns on an investment to a great extent. You can consider ULIPs or ELSS when it comes to tax saving instruments. ULIPs have a plus point as it gives you tax benefit on premium paid, tax free returns, life-cover, no allocation or policy charges and a flexibility to switch between high performing funds. The best part is that a new age ULIP also provides additional allocations to your investments which means the company also invests with you. Calculate your returns here and take an informed decision.
Uncertainty can affect your financial goals. Hence it has to be considered as one of the factors in your financial plans so that you are ready and prepared for any financial uncertainty life throws at you.