Saving for a Rainy Day

(This column was first published on Value Research Online.)

What’s happening in Greece is an unprecedented situation. However, like we are witnessing, unprecedented situations are not implausible ones. But the problem with unprecedented situations is that they’re largely unforeseeable. The situation in Greece, which is being called Grexit, might have been anticipated. It was almost a situation-in-the-making. But there are numerous other crises that are not. These are exigencies that take place in our daily lives and if we are to tackle them with any amount of ease, we need to save for a rainy day.

When I say that we should save for a rainy day, I don’t mean stocking up on umbrellas, raincoats or windcheaters. Of course, in case of an actual rainy day, that would really help. But a rainy day from a financial perspective is when a crisis happens or you’re faced with a monetary emergency. When the skies open and you’ve to run for cover, you would either need an umbrella to stay dry or an adequate amount of money to make sure you don’t get wet.

This is why we often advocate that before an individual starts investing in stocks or mutual funds, they should first make sure they buy pure term insurance and have an emergency fund that is easily accessible. The emergency fund could be in the form of a savings bank account, bank deposit with an overdraft facility or a short-term debt fund. Enough already has been said about the importance of a sufficient term cover. It’s an expense that should be made.

Having insurance will safeguard your dependants in case of tragedy, while a contingency fund will allow you to be prepared for any situation that requires immediate cash. The last thing you want is you and your family running around looking for shelter after the downpour has already started, because we know that it doesn’t take long for our world to get flooded. In purely monetary terms, this would mean you’re scurrying about to gather the money you need to meet the emergency. And while you waste precious time doing that, the situation is only going to from bad to worse.

So, save for a rainy day. Stock up on umbrellas and raincoats. While you’re doing that, don’t forget to create an emergency fund. But before you do both of those things, get yourself adequately insured in the purest form. And once you’re done with all of that, enjoy the monsoons.

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