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Expenses that can set your financial plans back

Originally published on BeingFinWise
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 It is good to have a financial plan. It enables you to have financial resources ready when you may need them. At the same time, it enables you adapt your lifestyle in alignment with the desired goals.
But the ride is not always as straightforward as the excel sheets with projected expenses & rate of returns suggest.
There can be several factors that can set back your financial planning, even by several years. While one may not have a foolproof mechanism against all eventualities, one can definitely mitigate the impact of several uncertainties by having proper safeguards in place.

Here are some factors that can set your financial plan back by several years

1. Major Health Issues

Arguably the biggest thing that can wreck your finances. A week's hospitalization can probably set you back by few lacs of Rupees in India or few tens of thousands of Dollars if in US (healthcare in US is really expensive). Add to that need for medical intervention needed in case you need to undergo treatment for a heart condition (say, angioplasty) or surgery post accident or hospitalization for dengue fever or cancer treatment.
Major illness or serious chronic conditions can wipe off your savings. And they usually come without prior warning.

2. Death in family

In addition to the emotional toll it takes, such unfortunate event can have financial implications - immediate as well as long term. More so, if there are dependents and/ or the person dying is the sole breadwinner in the family.

3. Unexpected expenses like house repairs

If you own a house for long (and live in it also!) you are likely to have some regular maintenance & repairs that need to be taken care of. And sometimes these can be more than what you budget for. Oftenz this is not just a financial decision but an emotional onez which can lead to cost overruns.

4. Expenses like kids education

While this should be a part of your financial plan, you may sometimes be in a situation wherein the actual expenses may more than the projected expenses (e.g. MBA from an expensive foreign university, or medical education from an expensive private university - which may be more than what you have budgeted for.

5. Loss of income

Hearing of layoffs is not uncommon. Layoffs can put an immediate strain on your finances, as suddenly you can be left without a paycheck, especially if you are unable to get any suitable job later on. If you are in business, you will need to deal with increased uncertainty. The lack of consistency in income can be daunting, especially during the "slow" times

6. Taking Debt

With debt, you can make compounding work against your rather than for you. More so in case of debts like personal loans or credit card debts. At the same, the fact that you have taken a debt indicates that there may not be enough savings to dip into (or you are in a virtual debt).
Avoid debt. And if you have debt, try clearing it off as soon as possible.
(You may also be interested in – How can compounding work wonders for your financial life)

7. Legal issues

Got in trouble with law? It may be an expensive proposition. Unfortunately, fighting legal battle can drain you and your finances. And this worsens if you have (financial) claims to settle.

How can you prevent financial setbacks?

Well, there may not be any foolproof method. However, some of them can be (partly) addressed by means of proper planning.
  • If you have good health insurance, you can probably avoid medical condition from poking a major hole into your pocket. By having a proper term plan, death may not have major financial implications on your family.
  • If you do goal based planning, an event of major cash outgo (e.g. buying a car, house repairs, kids' education etc.) is unlikely to be a financial shock for you.
  • Having a handy contingency fund can help you tide over any unforeseen emergency.
Financial planning is not just about aligning your finances to your financial goals, but also planning out for various eventualities that may arise. To draw analogy from football, it is not just about scoring goals but also saving goals!.
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Have something else in mind, which can have adverse effect on your financial lives? Do share.

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