Have you ever seen the trapeze acts in the circus? Trapezes are those acts wherein artists swing in the air and do breath taking stunts. Are these acts not risky or these people belong to some other world? These artists are normal people like you and me and believe me the acts are also very risky. But what lets them perform these acts fearlessly is the safety net placed below them. What if there is no safety net? Either the artists wouldn’t perform or the performances would not be upto the mark. The fact that there is a safety net to protect them in case they were to fall helps them to overcome the fear of falling and motivates them to perform to the best of their abilities. Protection enables these artists to take higher risks.
When it comes to managing money, safety nets are equally important. Confusing isn’t it??? With safety nets here I mean something that relieves you off, the worries about falling short of money or losing it all or otherwise. Safety nets does nothing more than answering the “what if” questions like what if I lose my job or have unexpected big expense or get sick etc. Answers to these question help you to take control of your finances and lets you be worry free; no matter what happens.
Safety Nets You Need
1. Emergency Fund
Most of us want to keep some amount of money to fight the unforeseen emergencies that might come our way. This is nothing but a safety net that we create to overcome the unforeseen tough times.
If you don’t have, create one. The key is to start small and regular. Ideally you should have atleast 3-6 months’ worth of living expenses parked in an emergency fund. Liquid funds, an alternative to savings a/c is the best tool to park money for emergencies.
2. Have Adequate Insurance
Life, Health and Disability Insurance helps to build a safety net that manages the risk of losing the breadwinner of a family, falling ill and becoming disabled respectively. These mishaps can derail the finances of any household. Just having them is not enough; make sure you have adequate insurance to cover the damage that might be caused in case of any mishap.
3. Invest for Long Term
Lastly once you build an emergency fund and have adequate insurance in place; it’s time to plan for your long term goals viz. wealth creation, retirement etc. As quoted earlier also, equities are the best tools to plan for your long term goals. But equities are risky. The safety net that you create; enables you to take higher risks and ensures accomplishment of your long term goals effectively.
These small steps towards plugging the holes in your financial safety nets gives you peace of mind, gears you up to take higher calculated risks and make fortunes out of it.
