Financial Stepney – A positive catalyst to your emotions

Fallback or Plan B has not been welcomed positively when it comes to following a passion, as few believe it fails to bring out the full potential in any situation. However, businessmen, sportsmen, or any team player always believed in having a Plan B.

We at S9 Financial Planners, have a similar way to explain the concept of financial backup or also known as contingency or emergency funds which according to us is a must-have portion in any individual’s personal finance portfolio for unprecedented times. We like to call it “Financial Stepney”

We have all gone through one such unexpected and uncertain period in 2020. Due to this unforeseen Pandemic, everything was shut, businesses were down and job losses were at their peak. Even the stock market was highly bearish at that point in time.

Obstacles in having Financial Stepney or emergency funds
We have noticed two kinds of habits that mostly cause obstacles, whenever we have asked clients to have their financial Stepney in place.

Lack of Planning: Just like when a journey is planned, one is too focused or excited on routes and stopovers that the alternatives of things going wrong are not taken into consideration all the time. Similarly, when we plan for our financial goals we are so much into achieving them that we lack in planning our contingencies. Whereas, as a financial planners& investment advisors, we strongly recommend having our risk-managed. Planning ahead of time and taking “things to go south” outcomes into consideration in such scenarios is very important.

Last on Priority: In our priority list, the emergency fund is always at the bottom when we all are well aware that trouble never knocks before coming. Most of us tend to have this attitude that this is not something that needs attention right now, and then we regret not having it the most.

Why do we need a Financial Stepney?
During this lockdown, we observed that many businessmen and the working class redeemed almost all their investment and savings which were actually kept for achieving their short-term and long-term goals. This led to the real financial crunch and no Plan B to rely on. We have also evidently noticed when financial goals are not achieved as planned or dreamt, one invites emotional chaos. None of us want any of this stress or disturbance in our lives.

There is a brighter side to this thing. The one who had their contingency plan or financial Stepney in place was able to stick to their goals and keep their investment as it is. Redeeming emergency funds that were parked in their portfolio was the right move in such a scenario. Financial Stepney here can act as a positive catalyst for our emotions.

The importance of having a Financial Stepney or emergency funds in your financial plan is something I wanted to throw light on, but it is necessary to know how to create one?

How to create Financial Stepney or Emergency funds?
Here are the basic things to remember when you create your Financial Stepney.

Financial Stepney is not a short-term process.
You should aim to have emergency funds that are equal to or near to 6-9 months of your salary or profit amount.
Funds parked as emergency funds should be only used in emergencies and not on things that are not in the plan or for splurging. It is not the excess amount.
Park a part of your bonus or other passive income as a Financial Stepney.
Make sure that your emergency funds have easy liquidity so that you can actually use them at the time of emergencies. For clarification, Investment in buying a house cannot be called an emergency fund, because we need to know that one cannot sell a part of the kitchen or bedroom in exchange for funds. Liquidity is of paramount importance.
Lastly, think of Financial Stepney as ‘Plan B’ – it’s a realization and acceptance of the fact that no one can predict what is in store for us in the future. However, with a Stepney, even after a small interruption we have the power to drive back on track.