Consider two situations. It is 2008 and the global markets have taken a hit. India is left reeling too. The company Mr X works for has to implement cost cutting measures immediately and decides to lay off personnel. Mr X is one of the unfortunate and loses his job. He goes back home to his wife and son who is just about to finish school and head to college. The next day he decides to check his finances and discovers that he can keep the house running only for the next two months and if he delves into his savings, then perhaps an additional three months. At the same, his son who is finishing school soon will be heading to college and there are no provisions for that. Mr X frantically starts looking for a job and after a couple of months of stress he settles on a job which pays lesser than his previous job and has longer hours. But because of necessity there is nothing he can do.In the second scenario Mr Y is laid off at the same time and goes home to his wife and daughter of a similar age as the previous case. He is not perturbed in the slightest when he goes to sleep that night as he has a separate fund which will cater for his daughter’s higher education along with enough savings to run his household for the next year. He proceeds to take the time off as an opportunity to polish his resume with additional courses and a year later he gets a job with a profile which is better than the one before.Now think about it, which one of the cases would you prefer because both individuals assumed that their job was safe and were not expecting this to happen? The future cannot be predicted but no matter what the situation, we can be prepared financially. This alone should be a pretty compelling reason to start planning your finances, but if you think this scenario is dire, and the possibility of it happening are quite less, remember there are other reasons why you should plan and invest according to the plan.
- Inflation
- Long term goals
- Emergency
- Retirement