The Unexpected Trouble with Financial Plan
We create a financial plan to systematically achieve your goals. However, we may face unexpected problems that prevent us from achieving our goals. Covid, for example, has created unexpected problems last year that put a lot of financial pressure on us. We were not sure if we would be able to keep our jobs, when business would return to normal, or when a health emergency would occur. They ask for repairs, insurance runs out, schools and universities demand payment, gasoline and diesel prices keep rising, and so on…
The Stress Test for Your Financial Plan
Similar situations may occur again in the future, and it is wise to always be prepared to deal with such situations without stress while remaining financially sound. So, taking a personal financial stress test will help you understand if you are ready to face such situations. By applying our plans to various points of stress, we learn the will to overcome difficult situations. Here are some variables you can examine to test readiness:
What if you lose income?
If you lose your job tomorrow or your business goes down, how many months can you manage your expenses without saving? By cost we mean only essential expenses necessary to meet basic needs and pay essential expenses such as tuition, loan EMI, etc. To check this, count your liquid funds, such as cash, bank balances, and investments in liquid funds, and see how much you have. Months that can be covered based on this. Don’t treat your credit card or credit as liquid money, and avoid it whenever possible during difficult times.
What if there is illness?
With all new types of viruses, pollution and stressful lifestyles, life in this century is not easy. Are you insured against any problems that may arise? If you or a loved one suffers from a health problem, how much will it affect your personal finances? To test this, you need to know your family’s medical history, see how stressful your lifestyle is, and understand what health problems you may have. Then you need to make sure you have enough insurance coverage to cover these situations.
Where do I invest?
What if emergency funds and insurance are not enough to handle the crisis mentioned above? If you’re investing more in lockdown products like ULIPs, insurance funds, post office plans or real estate, you could put yourself in a crisis situation. Thus, it is always advisable to invest in products with less or no lock-ins.
What if my investment goes south?
What if you invested your money in a fund and fund loses badly OR you loan your money to a friend and friend goes bankrupt ? To check this, you need to make sure that you are not investing a large amount of money in one product. You should diversify so that if one part of the investment goes bad, it won`t impact you in a large way. It is always advisable to not invest more than 10% of the money in a single investment.
What if I die?
What if you die? How will my family claim insurance? How will they ask for your money on all other assets and under whose direction? Make sure you are willing and check regularly. Also, make sure that the executor is able and willing to assist the family in the execution of the will.
Check for your financial viability
Personal finances are a very important topic and regular stress testing is essential to taking care of you and your family in unhappy situations. A stress test is an exercise in thinking about whether a plan can take care of you and your family during difficult times without thinking about tax savings, growth, net worth, debt, interest rates, etc. , and how long.
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