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3 steps to solve your financial woes

November 4, 2008
~Lehman Brothers files for bankruptcy.

~Investors lose billions of dollars in the global financial meltdown.

~RBI cuts repo rates to cool down rising interest rates.

~Jet Airways sacks 1,900 employees (but thankfully takes them back)

~Sensex down to 10,000 points... the writing is on the wall. This is just the beginning and expect more bad news in the days to come.

But are you prepared to face these bad times?

Adversities can be of any kind: global meltdown affecting your job, depression leading to illnesses, you having no money to pay your monthly installments... the list can go on.

To make matters worse your income keeps decreasing while expenses remain the same or even increase. Tough efforts need to be put in to reduce expenses. Again this does not happen instantly as we all need time to adjust to change.

So in such a situation our very first reaction is to panic. It is common to most of us except for those who have made an allowance for such adversities. You might argue that no one is prepared for such a situation. Well let us see how a three-prong strategy can help you face such adversities.

Emergency funds

This is the most important and the foundation stone of risk management. A lot has been said and written about emergency funds. It is always advisable to keep aside at least three to six months of mandatory expenditure in cash, fixed deposits or liquid funds. But what are mandatory expenses? These are the expenses, which in any situation, you have to pay or spend. You can divide them as fixed mandatory expenditure and variable mandatory expenditure.

Fixed mandatory expenses are all the loan installments, school or college fees, insurance premium and rent if any.

Variable mandatory expenses include your monthly groceries, utility bills which includes electricity, telephone and others like internet usage and transportation expenditure.

These are the most basic expenditures which most of you have to deal with every month though it differs from person to person.

Sum up the above two expenditures and the figure you arrive at is your compulsory expenditure. You have to keep aside at least three months to six months of this figure in the form mentioned above.

Why an emergency fund?

Generally, in any financial or medical adversity three to six months are enough to come out of it. Hence, once this fund is in place you can relax because you know you have a financial cushion.

Sheetal Jhaveri is a financial consultant and can be reached at

Text: Sheetal Jhaveri | Photographs: Rediff Archive

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