Have you planned for worst case scenarios?
Francis Pinto had a dream career since the time he landed his first sales job in 2001 at a very young age of 23 after having completed his MBA in marketing. Slowly he rose up the ranks in his organization based on his exceptional performance and by the end of 2008 he was already a senior manager earning a 6 figure salary per month. During these 7 years, Francis was able to buy his own house, the latest sedan and got married to his office colleague, Sunita in 2007. In 2008, just towards the beginning of the subprime crisis which created a recessionary situation, he quit his job to take up a better assignment with an MNC company. After spending only 2 months in the new company, he got a major jolt when his company became a victim of the credit crisis and most employees including Francis were fired in no time. The next 2 months he frantically searched for another job as he had his home loan EMI’s and family expenses to take care of. Sunita’s income was barely able to meet the family’s basic expenses leave alone the mortgage payments.
In his third month of unemployment, the family got another jolt when Francis was diagnosed with a severe lower spinal disease for which he had to undergo surgery immediately. As feared by the doctors the surgery was successful but it resulted in paralysis of Francis below his waist. Having relied on his employers mediclaim cover, the family never took a separate medical cover and hence spent a large part of their savings in the treatment. Whatever little remained went towards payment of the huge home loan emi. Eventually after consulting their financial advisor, Francis sold his house and took up a small rented flat to keep costs lower. After paying off the home loan, the remaining amount of around 20 lakhs were invested in fixed deposits to fetch the family regular income for taking care of medical and basic expenses.
Its 2012 now and after nearly 4 years Francis is showing some signs of recovery. Very soon in the next 2-3 months he should be able to walk and life a normal life once again. The family has already lost 4 years of his income and their own house. Whether Francis will be able to work the same way as earlier or can he get a good job again is anyone’s guess. But this episode provides a lot of learning for us which can be summarized below.
Insurance is the foundation of your financial planning life. Adequate cover has to be taken for life, health, disability, etc before you start your investments. Consult your planner and take this up on priority.
Don’t rely on your employer’s medical insurance as the cover provided may sometimes not be sufficient if there is a severe illness. If you quit your job, you lose the health cover and the next prospective employer may or may not provide you the same benefits. Also during the employment period, if you suffer from some ailments or disease, then you might become uninsurable when you apply later for a separate health insurance policy. The way out is to buy a good amount of health insurance at an early age and increase it subsequently after a few years. As seen in the case of Francis, health issues can have a crippling effect on your finances, even pushing the family into debt.
Don’t think that your high income earning years can continue forever and spend unnecessarily on things that you don’t need. The way we are working today and given the growing pollution and sedentary lifestyle we may not be able to work till our usual retirement age. Save as much as possible in your high income earning years as this amount if properly invested as per your goals can provide you a good corpus to depend on in case of any eventuality affecting the family or career.
For non earning spouse, develop and nurture education and skill sets which can be used to generate regular income, if the main earning member is not able to do so due to any eventuality. Most women sacrifice their career for their kids and once there is a huge gap, getting back to work and earning an earlier level of income becomes difficult. They should devote some time for themselves on education and honing their skills which can keep them prepared.
Remember it’s better to be prepared than look back and regret.
Steven Fernandes, Certified Financial Planner
Chief Planner, Proficient Financial Planners.