Navigating a cash crunch tactfully with your savings

 

Introduction: 

A cash emergency comes without any indication. Even in the best of times, you can find yourself low on liquid funds. What do you do during such difficult times? This is when your savings can provide you with financial relief.

They can offer a buffer against financial instability and help you cater to your immediate needs. But it is important to use your savings judiciously.

How much should you withdraw from your savings?

Determining how much to withdraw from your savings depends on various factors, but the key is to assess your needs prudently. You can start by reviewing the balance in your savings account. Next, calculate the total cost of your essential expenses during the cash crunch period. For example, if you have medical bills to cover, estimate the treatment expenses and withdraw an amount that matches your needs.

It is crucial to withdraw only what is necessary to cover your essential expenses during this time. By doing so, you can ensure that you make the most judicious use of your savings while navigating through the cash crunch. This approach also helps safeguard your financial progress and ensures that your savings continue to grow without being significantly affected.

Things to keep in mind when using your savings to cover a cash crunch

1. Use your savings wisely.

While it may be tempting to tap into your savings entirely to address immediate needs, it is advisable to avoid depleting it completely unless absolutely necessary. Preserving a portion of your savings helps you maintain a financial safety net for unforeseen emergencies and future expenses.

So, while you may dip into your savings for immediate financial concerns, leave a portion of it untouched. This will allow your savings to grow for your future needs.

2. Distinguish between needs and wants.

You must learn to differentiate between a genuine need and a mere want. A cash crunch is not simply a desire for certain items or experiences. It is a situation where the necessities of life outweigh the available funds.

Needs encompass essential expenses required for maintaining basic living standards, such as housing, food, utilities, and healthcare. On the other hand, wants refer to discretionary spending on non-essential items or luxuries.

For instance, paying rent is crucial for maintaining shelter, while purchasing a new pair of headphones may be a desire rather than a necessity. Identifying and prioritising your needs over wants can help you allocate your savings more effectively during a cash crunch.

3. Replenish your savings.

You must prioritise replenishing your savings once the immediate financial crisis subsides and your steady income resumes. Additionally, if you receive unexpected windfalls, such as tax refunds or bonuses, you can consider allocating a portion of these funds towards replenishing your savings to bolster your financial resilience further.

Consistently contributing to your savings allows you to rebuild your financial cushion and prepare for future emergencies. Establishing a savings plan tailored to your income and expenses helps cultivate disciplined saving habits and promotes long-term financial stability.

Savings plans like the HDFC Life Click 2 Achieve can be a suitable option here. A savings insurance plan typically offers a combination of savings and insurance benefits designed to protect against unexpected expenses and income loss. A savings plan offers a guaranteed¹ immediate income that can help you plan for various financial goals. It also offers features like a built-in premium waiver² in case of adverse situations like death, critical illness or total permanent disability to help cover a cash crunch.

4. Be cautious with your investments.

It is advised to refrain from immediately liquidating your investments in a cash crunch. Instead, utilise the funds kept aside for emergencies. This can help you counter emergencies without compromising your long-term financial goals while addressing short-term challenges.

A cash crunch may be beyond your control, but using your savings prudently isn't. So, be tactful when navigating adverse financial situations. Before you choose to withdraw, speak to a financial consultant who can help you draw up a financial game plan to overcome the crunch. 

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ARN: ED/03/24/10020