Kalpesh Chauhan,
(Tax Assistant (Accounting Technician CA FINAL CS PROF. PROG. B.Com))
(8310 Points)
Replied 23 July 2010
Last week, when a friend of mine reached the parking bay of a multiplex after spending 3 hours watching a not so entertaining bollywood flick, he was shocked to see his 14 months old hatchback’s bumper crushed and tail lights broken into bits and pieces. It was apparent that some other vehicle must have crashed into it while trying to park. That movie actually costed him a ten thousand rupees as his vehicle insurance had expired just 2 months back as he forgot to pay the renewal premium. Another, friend of mine after withdrawing cash from an ATM counter, left his Debit Card near the ATM machine. After an hour, when he realized that he has lost his debit card, he spent another hour looking for the bank’s helpline number so that he can get the card blocked for any further transactions. But, by the time he managed to block the card, it was too late, there wasn’t any cash left in his account. And this was the result of my dear friend’s habit of writing the Debit Card’s PIN at the back of the card with a permanent marker. Is it so that such things happen with my friends only? NO. This could have been your friend’s story or even your story. Such incidents or accidents not only disturb us monetarily but also mentally. However, if we take a few steps, such disturbances arising out of unplanned situations can be minimized.
Situation #1 : Loss of job, business losses
Plan : Create a Contingency fund : Before executing your investment plan, set aside an amount equal to 6 months’ expenses in case you are a salaried individual or 12 months’ expenses if you are self employed. This will provide you with a buffer amount in case you lose your job, plan to change your existing job, the cash flows from your business suddenly dry up or any other contingency. The best way to create such a fund is by opening a sweep-in account and amalgamating your savings and fixed deposit accounts, thus enabling you to withdraw your fixed deposit amounts using your savings account debit card. Also, whenever you withdraw from your contingency funds, try to replenish it whenever the situation improves.
Situation #2 : Tumbling stock markets
Plan : Portfolio diversification : A classic mistake which every investor makes is that when the markets are bullish he becomes blind to the risk and in bearish markets, he becomes blind to the opportunities. Looking at one’s risk appetite, a balanced portfolio should be designed consisting of equity and debt instruments. Investments made in traditional instruments like Public Provident Fund(PPF), Fixed Deposits, recurring deposits may not give exorbitant returns like equities, but in case of falling markets, even returns from such traditional products can look attractive.
Situation #3 : Theft or Damage to vehicle
Plan : Motor Insurance : The only insurance which is compulsory in India is Motor Insurance (Vehicle Insurance). As per the provisions of the Motor Vehicles Act, all the vehicles should be insured to cover atleast third party liability. However, one should prefer a comprehensive policy which, along with the third party liability covers the damages to the vehicle and the person inside it. Generally when we a buy a new vehicle, an insurance cover is compulsorily provided by the dealer for first 12 months. But, sometimes we simply forget to pay the renewal premium and then end up paying huge amounts for damages. Best way is to set an entry in your cell phone’s calendar or scheduler to remind you 3 days in advance that your motor insurance premium is due. By paying motor insurance premiums and keeping a copy of the insurance in your vehicle, you will also be able to save a few hundred rupees paid as bribe (read challan) to traffic police personnel.
Situation #4 : Accident or illness
Plan : Health Insurance : Life Insurance, be it a traditional plan, ULIP or term insurance, is there for your dependants, but for yourself, go for a health insurance policy (mediclaim). The purpose of taking a health insurance cover is to enable you to meet the expenses related with unexpected illness or accident. The annual premium is generally in the range of Rs. 3000 to Rs. 5000. Always prefer a cash-less policy where the insurance company directly settles the medical bills with their network hospital. Also keep the Smart Card (in case of cash-less policy) and Insurance Company’s Helpline number handy, because generally, you are required to intimate the Insurance Company within 24 hours of hospitalization.
Situation #5 : Loss or misuse of Credit or Debit Card
Plan : Don’t be like my friend who wrote the PIN at the back of the card. Simply memorize the four digit PIN, and if there are many sets of four digit numbers in your mind, atleast don’t write the PIN on the card. Issuer bank’s helpline number is always written on the card but we are talking of a situation where the card itself is no more in our possession, so save the bank’s helpline number in your cell phone so that you can immediately report the loss of card and get it blocked. In case of Credit Cards, memorize the three digit CVV number written at the back of your card just beneath the magnetic strp and then either scratch or darken it. This will minimize the possibility of your credit card being misused by some other person for making payments over the internet without your knowledge, even when that other person is in possession of your card, as the CVV number will not be visible, which acts as security check while making online payments. And last but not the least, do not write on your credit card the ‘Verified by Visa’(VbV) or ‘MasterCard Secure Code’ password, in case of Visa or MasterCard credit cards respectively, that are required to authenticate a payment on the internet.
This was just a set of five situations which many of us may have to encounter in future. There may be many such unexpected and unplanned events, but the key lies in planning well and being prepared for such contingencies. A journey of a thousand miles starts with the first step. Even if you haven’t started, start now. Plan well and be prepared because MONEY MATTERS.
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