In this post, I will share a different view on calamities which are inevitable and are beyond any individual’s control. In the finance world, investors hedge their interests. Similarly, in real life, it is important to have protection which is known as hedging in finance.
Most of us must have heard the Tortoise and the Rabbit fable. The usual message from this story is ‘slow and steady wins the race’. But I feel it was not the Tortoise’s consistency that led to victory. It was the Rabbit’s mistake that made him lose the game.
Majority of people want to win their life race, basically live a better life. And for this, they do not make conscious mistakes like what the rabbit did. But still, calamities come unannounced.
By this view, life is not a winner’s game. It is a loser’s game that we must try to win.
In the book, Winning the Loser’s Game Ellis describes what he calls “winners’ games” and “losers’ games”:
In a winner’s game, the outcome is determined by the correct actions of the winner. In a loser’s game, the outcome is determined by the mistakes made by the loser.
The objective to write this post is to pass-on a different view on calamities which can either be good or bad for you and your finances. So let’s prepare for them together.
To be ready, you need a sword and a shield.
Emergency Fund, your Shield
Emergencies and calamities are bound to emerge, it is a matter of when and not if. And when they come calling, you will need a shield to protect yourself.
No one wants to live one paycheck away from not being able to pay rent. Or one payment way from defaulting on your credit card due.
Having an emergency fund handy of 5-6 months salary in FDs or liquid mutual funds will ensure that you do not have to worry much about emergencies.
A Broad Sword: Insurance Policy
As mentioned earlier, calamities are right in the corner waiting for you. The perfect weapon to neutralize them is a broad sword which we all commonly know as insurance.
Insurance has more benefit than what meets the eye. Here are some:
- The most obvious, payment in case of losses. – It provides indemnity benefits to the insured.
- Managing cashflow when uncertainty strikes. – In case of an insured event, the out-of-pocket expenses are significantly reduced with insurance.
- Compliance with legal requirements. – It provides evidence of financial resources.
- Promotes risk control activity. – You will try to have an active lifestyle and avoid bad habits to lower premium. (Eg: a non-smoker might not start smoking because of the increase in premium.)
- The hidden one, it is a support to credit score. – Insurance implicitly guarantees the lender that in case of an insured event, repayments won’t stop.
Finding the best insurance policy in India is not so simple. There are various factors which are at play here. And moreover, it is a subjective matter. So only you know what’s best for you
For instance, if you are someone that falls ill frequently. Then insurance with lower deductibles or co-pay is the right choice.
Consequently, if you don’t fall ill easily, then higher deductibles can be chosen as it reduces the premium.
There can be a bad time in anyone’s life, it’s always better to be prepared than worry about them.
You have to prepare yourself. To come out of any uncertainty unscathed, you need emergency funds and insurance. Start building towards a secure future now.
For a prudent choice, you need an advisor who knows all intricacies and with whom you can align your interests.