2017-How about a ‘Life Continuity Plan’​?

I spent almost the entire month of December, 2016 in hospital. There was a medical situation which required me to be with the close family member as he was in ICU for more than three weeks.

This time spent there was an exercise in itself and apart from the agony, anxiety and insecurity associated, it was also time for some introspection.

It made me realize the importance of continuity-like BCP in our organizations, it is essential to have continuity in life, in case of an emergency.

The trigger – While filling up the Insurance claim form at the TPA counter, I came across a lady who was not aware about even the name of the organization her husband worked with, leave aside other details. She had two school going children and the husband, the only earning member, had suffered a paralytic stroke.

The Dictionary defines ‘Emergency’ as “a serious, unexpected, and often dangerous situation requiring immediate action”. This ‘immediate action’can be better controlled, to an extent, by some planning and the sooner we act, the better it is.

These are certain aspects which might help us in initiating an action:

1 TheWhy’ – No one ever thinks about anything going wrong with him/her or a family member and thus plans for future with respect to long/short term investments which would yield good returns and help in achieving life goals.

·         Life goals would mean kid’s education, house, car, celebrations etc. However, in absence of an effective plan, a medical emergency can derail all your long term goals by eating into the investment corpus.

·         Medical costs are quite exorbitant – (our first week’s expense was close to five lakhs) your employer’s medical cover takes care of only the hospital expenses (full or partial). Think about other aligned expenses – medicines, travel related cost, post hospitalization check up, multiple visits to the doctor etc. These would be totally from your pocket.

·         What if the medical situation/illness is prolonged and you have to go on an unpaid leave for a month? Loss of job due to the illness is a scary, but realistic possibility as well.

·         Creating a life continuity corpus would enable us or our family members to carry on with a normal life from a monetary standpoint in case of a medical emergency.

2 Creating a corpus – there cannot be a formula for calculating a particular amount for everyone. As a general rule, three to six months of house hold expenses is suggested as a corpus. In case of a family where there is a single earning person, factors to be considered will be different from a family where both are working.

·         The amount thus arrived at can be accumulated and put in either a joint account or an account in the name of the spouse (the way it works for you).

·         We generally live from salary to salary and thus most of the EMIs and other payments are taken care of through the salary account. Link this (corpus) account to the salary account, so that in case of any disruption, funds can be immediately transferred to the salary account.

·         Creating this corpus would need effort and can take time as it would require you to tweak certain expenses and change your lifestyle, at least in the short term. Be disciplined.

3 Inform and teach– there is a lot of focus in the modern workplace on open culture, information dissemination and communication. Though in our personal life we ignore this important aspect.

Inform

·         Create a list of expenses and categorize them with respect to the frequency (monthly, quarterly, or semi-/annual).This list should have items like house rent, home/auto/personal loan EMIs, utility bills, in case of school going kids, their fees, day care or private tuition fee etc. It should have details like date, account/s or cards from which the payments are being made.

·         In households with double income, mostly, one person saves and the other one takes care of all the expenses – in such an arrangement, the other one should know all the details regarding the regular transactions. It would be better if monthly expenses for essentials/utilities can be automated.

Teach                                                                                                                                                                                               

·         It is imperative that the spouse is aware about how to operate bank accounts and conduct other financial transactions (online and mobile banking is easy & user friendly) Ignorance is no longer bliss.

4 Invest in relationships  In case of a long illness or hospital stay, family and office support would go a long way in taking off at least some pain.

·         In times of need, your subordinates and bosses are all equally important. It helps if you share a good rapport with your colleagues and if you are a good people’s person.

·         For those who consider relatives and neighbors as always intruding and are of the view that staying independent is the way of life, it is time to rethink. In tough times, you realize the importance of support from family, relatives and friends.

5 Take stock of your finances regularly-Take some time out to review your finances (at least annually) and align with your current life situation.

·         Make the pending (if at all) payments,basis above assessment and discontinue others which are not yielding any benefits (your Life Insurance policy for 3-5 lakhs for which you are shelling out INR 25-35,000 per year today would be worth nothing in 10-15 years from now)

·         If not a Term Plan, buy a health cover for the entire family. This would be a step in the right direction and will definitely make you stress free to some extent. (some of my friends cite a selfish reason for not buying a Term Plan-‘if we will not be there, what’s the point in taking a hefty cover’, they ask. However that’s  beyond the scope of this article)

6 Go for a health checkup today. Even if you are in early 30s, do not ignore- spending between INR 5 – 8,000 today for a checkup is obviously better than landing in an uncertain situation where spending a few lakhs would become a necessity.

Life is uncertain and full of challenges – a few controls can ensure peace of mind and provide the much required continuity.

For some of us, 2017 has just started. For others, we are through with the first month and left with only eleven months now.

Plan well, but execute !

 

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Credit Card for Financial Planning- an intelligent option

What prompted me to come up with this post was a series of phone calls from friends and then finally a function in the family. The phone calls were routine and rather innocuous but got me into some serious thinking. My friends keep calling me, mostly asking for my credit card details for making their travel bookings or paying mobile bills when the due date is approaching or when visiting the store is a hassle! Two of them have stopped using ‘plastics’ as they were unable to control their spending habits and the ever increasing offers were too alluring, finally resulting in a never ending debt trap.

One of my friends called me two weeks back and asked if he could order a water filter through a leading e-commerce site using my credit card as he was getting a very good deal and there was a cash back offer of up to 5%, on this particular bank’s card.

The ultimate trigger for this article was the wedding in the family last week. You must be wondering as to how did it bother me- it did, for an important reason- the mode of payment. Indian weddings are a lavish affair and however hard we might try; even the ‘necessary’ expenses are way beyond imagination and are always exceeding the allocated budget.

This is what I want to stress upon- approximately INR 7,50,000 was spent towards jewelry,dresses and gifts-I have included only these three categories as these are the ones where payment could have been made using a credit card. These are approximate costs and the final cost was slightly higher.Why am I rooting for using a Credit Card?

A little planning would have worked wonders in terms of savings and ‘earning on spending’. Let us see how- I have 3 cards from different banks or providers, on one I get one point for every INR 40 spent and on the other two, one reward point for every INR 50 spent. In this case, the transaction would have accumulated 18750 or 15000 points respectively (given the credit limit is available,obviously). In addition, had there been a shopping festival or some other promotional offer, the points would have multiplied manifold.

The entire payment was made in cash- this amount lying in savings account would have fetched interest for a good 50 days (credit period offered by most providers). Add to this cash back offers-even a 1% cash back offer (or whatever the maximum amount it is capped at) would have been beneficial. I calculated this keeping in mind my credit cards and with maximum cash back capped at INR 5000, the total cash savings would have amounted to approximately INR 12000 (including interest earned at 7% for 50 days).The points earned in the bargain could have been utilized later as per requirement and options available.

We might want to strike this off as a onetime purchase and the amount is also huge.However, if you really plan your finances well and start using your credit card intelligently, you would be able to earn reward points for the amount of money that you would spend on your monthly bills or purchases- mobile, electricity, internet, magazine subscriptions, dining out, etc.I did a quick calculation and was startled at the fact that the total annual spend was well above INR 2,00,000, with groceries, electricity bills and dining out contributing the maximum amount. I have become a proponent of using credit card for ALL my purchases since then.

Now coming to the reward points-if you have a credit card that offers you decent reward points on your purchases, then this should be the clincher- the next time you go for shopping, you would not want to carry your credit card. Most of the times you would be allowed to order gift cards of major shopping outlets, including apparel brands, grocery chains, gift shops etc, enabling your shopping using these ‘gift cards’. This is the reason you should look at the rewards catalogue and then decide what is it that you want to order using the points earned.

Some of the card issuers also give you an option of ordering a gift card similar to a charge card which can be used as a normal debit card for making POS or online purchases. I normally order this one as it gives me the freedom to ‘choose’

Conclusion:

You should have two or maximum three cards from different providers. Understand the individual billing cycles and then spend as per these cycles for maximizing benefits.

DO NOT make the payment towards your card the very next day of a purchase, just because you do not want to keep a payment outstanding or revolve credit- the benefits of a card are not for you then, as you do not understand the features.

Check the annual fees and other charges. An important point to note here is that most of us refrain from using cards that have an annual fee component, where as these are the cards that pack the maximum punch. If you use the card annually for a particular amount, the charges could be waived off, depending on the kind of usage and your payment history. The provider would not like to lose a good customer. Most of these high end cards with annual fees come with the best rates, customized offers and value added services.

Pay the credit card dues in full, preferably online, to make use of the maximum credit period, 2-3 days before the due date (or the last day, if the card issuer is your bank)

In terms of priority, keep the credit card payment on top, even before you pay your rent. Once you get into this habit, you would never think of revolving the balance on your credit card

Use your card on necessities every month and keep a track of offers- you would be amazed at how easy it is to earn points and cash back credits, of which sometimes you might not even be aware of.

The other benefits like free  insurance, frequent flyer miles, safety etc have been around for quite some time now, but the easiest and most visible benefits remain un explained mainly because we tend to ignore the positives of ‘plastic money’. A little understanding of the product, planning of finances and a strategy will go a long way in maximizing returns by using a product as simple as a credit card.