Preparing for Financial Shocks

PREPARING FOR FINANCIAL SHOCKS 

"Life is like a box of chocolates. You never know what you are going to get." Only, the uncertainties aren't always as sweet. Some days everything seems to go your way, and other days it's like nothing could go right. There is no way we can completely avoid all the bad, but we can be better prepared to face them. Here's how:

• Have an emergency fund. Emergency funds are savings you keep aside to help you financially through these times.They can help you cover sudden expenses without having to take loans or cut down on your daily necessities. Since these funds are reserved for real emergencies, you should keep the funds easily accessible but not use it unless an actual emergency arises. You could keep this in a savings account, so that you get paid interest on it as long as you keep saving it, and you can still easily take it out if the need arises. If you happen to use the funds for something, make sure you replenish it as soon as possible so that you are ready for the next thing too. The minimum suggested amount you should have in an emergency fund is the equivalent of 3 months' salary.

• Get insured. There are many different types of insurance - medical, life, property, and travel. Aasandha covers many medical bills of Maldivians. Make sure you make use of this whenever possible so as to reduce spending out of hand. It allows you to get some medicine for free, and also covers the costs of certain medical trips abroad if you need a specialist. Life insurance is important if you are a person with dependents. It is not that common in Maldives because we either assume that we will live long enough, or that our family will look after our dependents in case of a tragedy. However, the truth is that many families may find it hard to take on that additional financial responsibility. It is a good idea to get at least get term life insurance till your children grow up. Then, if the unthinkable happens and you pass away when they still need your financial support, your life insurance claims could help cover their expenses.

• Keep warranties. As for watches, electrical appliances or technological devices, make sure you get the warranty card when you buy the items and keep them safe. This way, you can get free repairs if the item becomes faulty within a certain period. Some items have a shop warranty, some have a local warranty, and some have international warranties.The warranty means that they will fix problems with the items that the company is responsible for - system issues for example. Terms and conditions do vary though, so make sure you read and understand the conditions properly.