Can you handle it when your entire wealth becomes an emergency fund?

Published: March 31, 2017 at 10:24 am

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Two of my close family members had health scares in the last couple of months. One of them realised (by chance) there that communication between the heart and brain was faulty. The other had a cardiac arrest and was revived. In both situations, there was mention of a pacemaker – a device that sends electrical pulses to trigger normal heart motion. No emergency fund would be sufficient to handle such expenses! Is there a way we can handle the financial implications of such sudden developments better?

Before we begin, my book with PV Subramanyam, You Can Be Rich Too is available at a 50% discount (Rs. 198) for short periods of time this month as it was among the top 25 bestsellers in the last 3 months. Grab it now! Thank you for your support.  The book reached the top of three sub-categories and the top 75th  across all categories (see image below). May not sound like much, but not all authors are lucky to enjoy the trust and support from readers.

The costs are high – one estimate given for the pacemaker was 12 Lakhs and another 24 Lakhs (I don’t know the specs/requirements). The point is that most of us are not going to have that kind of cash as an emergency fund, unattached to any other goal. Most of us are not going to have a health insurance large enough to cover such costs. We will have to dip into our retirement or child education corpus to fund such needs.

These ailments are not critical or debilitating in the sense that the person after treatment can still lead a reasonably normal life within adaptable limits.  So life goals like retirement, child’s education etc are still relevant. The monthly expenses would also increase significantly due to treatment costs (lifestyle creep can cut both ways).

We certainly cannot avoid such situations by “leading a healthy lifestyle”. Sure, it will help, but a probability is not the same as a possibility. And most us have an implicit  “it can’t happen to us” attitude.

There is no way we can prepare for such developments – emotionally or financially. So I have only one point to convey: If we can handle foreseeable situations well, we stand a reasonable chance against unforeseeable situations.

Photo by Tim Regan

“Handling well” has four parts:

(1) Invest as much, as early

I am sure you must have heard of “invest as much as you can, as early as you can”. This is not just about the power of compounding and building more wealth. Our ability to invest may not be the same in future. In our late 30-s and early 40-s, chances are, we will have some lifestyle disease to manage. Chances are, the health of our parents may deteriorate. These will affect our ability to invest.  Sadly, most of us realise, invest – as much, as early only in hindsight.

(2) Avoid Redemptions – they destroy wealth

The more important aspect is redemptions. If we can list all our foreseeable expenses along with a plan to handle them, we can minimise redemptions. For example, if we did not account for an expense that is likely to occur 5 years from now, chances are, we will be redeeming from our already invested wealth intended for other purposes.

Regular investing creates wealth, but a single redemption can destroy the fruit of years of investing. So the number one rule of wealth management is to avoid redemptions for needs that could have been planned for.

(3) Never stop contributing to the emergency fund

The silly thumb rule, “have six months expenses as an emergency fund” has no basis. Besides expenses increase all the time. So even for simple emergencies, a healthy emergency fund is necessary. I would recommend putting away 5-10% of the take home pay (or pension) into the emergency fund – for life.

(4) Keep increasing health insurance cover

Either every year or every few years, increase your health cover. Add a super top-up or increase its cover.  It is expensive, but it might come in handy one day!

With some luck and discipline, (1) + (2) + (3) + (4) + a few uneventful years should give us enough wealth to use as an emergency fund!

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About the Author M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the author and owner of  He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Pattu” as he is popularly known, has co-authored two print-books, You can be rich too with goal based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management.  He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. Pattu publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year (2.5 million page views) with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis. He conducts free money management sessions for corporates  and associations(see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints, TamilNadu Investors Association etc. Contact information: freefincal {at} Gmail {dot} com (sponsored posts or paid collaborations will not be entertained)
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  1. Dear Prof,
    One sincere request:

    Is it possible to position and place your ads not in the middle of your write-up?

    Your first para has a very scary catchy hook posts a question is there a way to handle a grave emergency?

    And then immediately your google ads push your book for Rs 200 at 50% discount.

    My reading flow gets thrown off and it feels very jarring and tacky to me. I am not sure about other readers.

    I understand it is your blog and your (very successful) book and it is my problem :).
    Still, wanted to convey the message across.


    1. That is not Google ads, but just me! I do that when the book is on sale. It is right at the top because I assume most people who load the page will not be interested enough to read the full article. A non-intrusive ad is an oxymoron. I can box that para so it stands apart.

  2. Indians have the tendency to exaggerate the costs of hospitalization to look cool among circles. Dont ask me why but there is this trend, so may be they just added an extra zero to increase their status symbol..

    1. Well, some people have other tendencies too – like being judgmental without access to facts, for instance.

  3. Future is unpredictable, but this fact is being exploited badly by the corporate hospitals. Watch out for that. Please take a second or third opinion. A friend’s mother was recommended knee replacement surgery, but they didn’t have an insurance so they panicked, but a second opinion revealed that the corporate hospital in Mysore was trying to make quick money out of the situation and with physiotherapy and strengthening of the muscles around the knee. So please take a second opinion always. Corporate hospitals are out to suck your blood.

    My mother had a bad stroke, but since my sister is a Doc and she knew it will be over in few days, we weren’t pushed to taking her to a “better” hospital in another city. 5 days of hospital care(including 3 days in ICU) was just 16K in the local cooperative hospital.

    So please watch out for the people who are out to suck your money in such situations. But do save much as you can.

  4. I agree, I see this trend mostly in NRIs where they take their parents/relatives to the costliest corporate hospital to show others that they care a lot about their parents. And the hospitals are on the prowl to recommend unnecessary procedures because these people are NRIs. And there is social pressure for others to follow them. So they keep going to these expensive hospitals as well.

  5. I apologize, all i wanted to state was something i noticed which may or may not be the case in this issue, but a 12-24 lakh pace maker didnt seem reasonable. I do hope they check a few hospitals to get the best quote for the procedure and have a speedy recovery. God bless.

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