The Buyt Desk
Life is changeable and unpredictable. No one can guarantee what would happen in the coming time. The COVID-19 pandemic is one of the biggest examples of it. Staying indoors away from near and dear ones for months with a lack or no financial support is a sudden shock for almost every person. Several months into lockdown taught every person the fear of financial insecurity and the importance of having an Emergency Fund.
What Is Emergency Fund?
As the name depicts, an emergency fund is the amount of money you have saved to successfully fix emergencies. This is the fund you can make the best use of during unforeseen circumstances such as major illness, vehicle or property repair, job loss, etc. Rather than using savings required for long-term goals/retirement or buying unsecured or unaffordable loans, you can use this healthier and safe option of an emergency fund.
How Financially-Prepared Indians Are?
In one of the recent surveys, it is found that Indians are financially not prepared for job losses and medical emergencies. A financial education company, Finsafe India, surveyed that according to 5,769 salaried Indians, financial goals planning is a major problem for salaried people in India.
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56% of Indians realized that financial goals planning was a tough financial challenge.
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30% of people were stressed about being unable to financially support their elderly parents.
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25% found paying medical expenses highly challenging.
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22% of people are not able to repay personal loans and credit card debts.
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54% of Indians felt that they were not ready for finance management when they lost their jobs.
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52% of people said that they had financial support from their companies but were not sure if that fund is enough.
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21% found that they were not ready to meet financial emergencies.
Only 27% of respondents from this survey stated that they had life & medical cover and an emergency fund. 41% of people were investing in mutual funds and 35% still prefer insurance policies & FDs (fixed deposits). It is surprising to know that about 34% of people were unaware of where they must invest. 71 percent said that they were depending on detailed financial planning and 48 percent on budgeting and savings. 20% of people have put their money into insurance and loans.
Way Of Investments
How and where you are investing is an important aspect of whether or not to meet your financial goals. The survey declared that usually, investments are made for a short time generally when there is a rise. When the market rate gets reduced or in situation of volatility, companies leave the market. Eventually, investors have no possible returns in the long run. Low savings and no return on investment make it challenging for people to cover their financial emergencies and goals.
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Wrong Investment
RBI (Reserve Bank of India) annual report 2022 stated that household savings are held mostly in FDs, which neither beat inflation nor are tax efficient. 61% of GNPI (Gross National Disposable Income) is organized in deposits vs. insufficient 0.5% of GNPI in equities. As per the report outcomes, people are unable to estimate the funds they require to save for goals and their significance. For example, salaried individuals can’t understand that they not only need employee provident fund (EPF) for retirement but equity exposure as well. This will help them in creating a higher retirement corpus.
Significance of Financial Advice
In India, financial advisors are considered only the person who is selling products. Not all financial advisors are necessarily equipped to discuss financial planning and its significance. Since the requirements of investors keep changing, there comes a need to modify the way stakeholders consider financial planning. Also, regulators have to provide a push for financial planning-based suggestions.
All over India, there is just 1324 RIA (registered investment advisors) doing financial planning. You may also find online platforms offering financial planning tools. Unfortunately, these tools don’t support human interaction which makes financial planning incomplete. These tools can be used for financial advice but they can’t understand your emotions.
Advisors need to understand that they have to add value via holistic financial planning rather than only suggesting schemes. They must gain increased and updated knowledge for the same along with its certification. Investors also need to be more practical to pay fees. In verdict, both financial advisors and investors should consider structured financial planning.
How To Create Emergency Fund?
To build your emergency fund, choose a target date for setting up funds based on the current financial circumstances. Get stock of your existing assets and allocate some of that fund towards the emergency fund. Make a monthly commitment towards the funds based on what your shortfall amount is. Create individual accounts for the accumulation of capital for an emergency fund. Channelize any lump sum inflow such as income tax refunds, etc. into an emergency fund.
