How many of us could have predicted 5 years ago, where we would be today? Be it in our professional or personal lives.
Uncertainty can be fun when it is part of new experiences in our lives. However, when it comes to our money, uncertainty becomes a concern.
After all, how do we know if our jobs will work out or not? What if there are unintended expenses, especially related to health care? What about an unplanned baby?
So is there a way to handle this kind of uncertainty? Here are 3 approaches that can help.
Approach #1. Plan for uncertainty
The first step in dealing with uncertainty is to accept it and make it a part of every plan.
While you should certainly have goals and have a plan that points towards where you want to reach. Add uncertainty to it. Let’s say you want to accumulate 1 crore in the next 15 years. You will have a plan of how much and where you are going to invest.
To plan for uncertainties, add a buffer and plan for say Rs 1.1 Cr. This will cater to hypothetical but possible scenarios such as a temporary job loss or repayment of a loan you didn’t anticipate taking.
Approach # 2. Know your assumptions
Be it inflation or the tax rate or the returns you can expect from equity, you should have a good idea of what these numbers are. The unexpected situations life throws at you may impact these assumptions. Changing the assumptions of your plan in response to changing situations helps you handle uncertainty.
Approach #3. Have an uncertainty fund
Sometimes the simplest option is to simply allocate a portion of your current earnings just to uncertainty. It need not be much and could be as low as 10% of your savings, but when you allocate money specifically to uncertainty, at least you have the mental satisfaction of knowing that you are catering for every eventuality – even the ones you don’t see coming.
Uncertainty is going to be a constant in your life, and the sooner you accept that and start considering it as one of the factors in your financial plans, the more you will feel ready to deal with it.