Couple goals: Keep your finances in check, always

On November 8, 2016 at about 4:30 p.m., Anandbhai had withdrawn ₹1.5 lakh in cash from his bank account. The money was needed for his daughter’s  arangetram (or the first solo presentation of a Bharatanatyam performer) on November 10.

After the event, the payment was to be made to all musicians, make-up artistes and others.

The family was way truly excited as their daughter Payal had been working really hard for the last 6 months and, of course, after years of practice.

However, things took a different turn at about 8 p.m. when Prime Minister Narendra Modi announced a ban on ₹500 and ₹1,000 notes.

External risk

In the case of Anandbhai, a few musicians had accepted payment by cheque, the make-up artiste was willing to wait for a few days even as the bank manager organised a few notes of smaller denominations for him on the morning of November 10.

This is an example of external event risk. Even after thorough planning, things can go wrong.

Internal risk

Now, let us look at another example of an event that turned the life of a client’s family topsy-turvy. Shraddha, her husband Samir and their two sons were a small, happy, middle-class family. Samir had a secure job. Shraddha was a homemaker whose energies were focussed on bringing up Samir (10) and Amit (7). They were living in a distant suburb of Mumbai. With his secure job, Samir had regularly invested in an SIP of a mutual fund; he also had two term plans and a well-diversified investment portfolio. Other aspects of his finances were also well taken care of. The family lived within their means.

One Friday evening, while Samir was returning from Pune after a business meeting, his car met with an accident on the Mumbai-Pune Expressway. He died on the spot. Shraddha and her sons felt completely lost and dejected. It has been seven years since then. Shraddha and her sons have yet to come to terms with Samir’s demise. Their finances are now back on track. This is a classic example of internal event risk.

In both the above instances, as a financial planner, I could offer some strategies to minimise the financial turbulence, but let me be honest: at the end of the day, there is something called an ‘act of god’ or a situation that is beyond our control such as a tsunami or floods.

The COVID-19 induced lockdowns were external and irrespective of proper planning, nothing could be done to minimise the impact. Shruti lost her job, Kirit had a pay cut during the lockdown. They had an outstanding home loan; besides, they also had to meet their daughter’s higher education expenses.

Fortunately, they had set aside a contingency fund, with which they could manage the situation for some time. However, this may not be possible always.

Many years ago, when there was massive downpour in Mumbai, ATM machines were submerged in water and individuals who needed emergency funds could not access them.

It is important to have a holistic approach in situations like these. Obviously, it is easier said than done.

Over the years, as a practising financial planner, columnist and guest on TV shows, I have recommended regular reviewing of one’s financial situation. This exercise should be pursued jointly with the spouse.

Review your finances

Spend about 2-3 hours every quarter on jointly reviewing your finances – only about 8-12 hours in a year. I call it going on a ‘financial date’. On these ‘financial dates’, discuss income, expenses, status of various investments, loans (if any), where and how various financial documents are filed and stored. Regularly update your address with service providers, wherever needed.

Also, if there are any financial goals coming up in the next quarter, plan as to where the funds for these will come from.

There will be events that are sudden. There is no way to control them, but the general experience is that couples who are regularly reviewing their finances and have a complete picture of their financial situation will be able to deal with disturbing events more effectively.

(The writer is a financial planner and author of Yogic Wealth)