Your unhealthy addiction can lead to Financial Crisis

We know about the physical, psychological & financial effects of an addiction. What about the family? Why and how will they face the financial crisis?

“Your life is in your hands, to make of it what you choose.” – John Kehoe

Stay away from addictions considering your family commitments

Practical Scenario

Once I got a call from Mrs. Rekha Chatterjee (36) (name changed). She wanted me to evaluate her financial position. She’s a home maker. Her husband has been suffering from ischemic brain damage since last 6 months. She is in financial crisis. While she met me, initially she was totally unhinged. Her mindset was to sell the residential house she was living in and buy a smaller 2 BHK flat adjacent to Kolkata. Her budget was Rs. 25 lakhs. She intended to spend the residual amount to run the kitchen. She is unaware of the fact that if she sells the residential house at Rs. 85 lakhs, it’ll not be adequate for her.  She came from a joint family. Both her in-laws are now no more. While her in-laws were alive, they had their salary and pension incomes respectively. The advantageous part of the joint family system was that three members were earning and the total numbers of potential dependent were only two.  They prophesied the identical financial situation. Immediately after the demise of both the in-laws, the situation had taken a sharp U-turn. The family has been struggling to overcome financial hardship since then. Another difficulty appeared while her husband left his job, who is now afflicted by Pneumothorax. The only bread earner stopped to earn his income.

Reason of Financial Crisis

The reason of financial crisis is her husband was a chain-smoker and used to lead an irregular lifestyle. The addicted person, once the only bread winner, is now living dead. After thorough diagnosis, it was found that he is suffering from ischemic brain damage due to cardiac arrest from Pneumothorax . Damaged lung tissue is more likely to collapse. Lung damage can be caused by many types of underlying diseases, including chronic obstructive pulmonary disease (COPD), cystic fibrosis and pneumonia. This person is unlikely to come back to his normal life if at all he survives.

Unhealthy addictions leading to higher medical costs at later stage of life

Then Mrs. Chatterjee came to me for professional guidance. I developed a Financial Plan for her. I had considered all the relevant aspects including her background and negative emotional state so that she can somewhat recoup from the current situation. Emotional turmoil is a normal constituent during such crisis.

The common problem is due to financial illiteracy & numerical illiteracy. I tried to make her understand about her financial status, her future financial commitments towards her son and husband too. The child is only 8 years old. She’s 36 years and her husband is 42 now. Her husband is physically, psychologically & financially dependent, while her son is a student and also a dependent. They’ve to depend on passive income. Unfortunately, they don’t have much investment to run the show. Therefore, a contingency plan is a plan composed for an outcome other than in the usual/expected events was lacking. It may happen due to unemployment, accident or illness or any other unforeseen incident. During financial crisis, it may go out of one’s control. But you all need to see the invisible areas and a Financial Planner has a great role to play in making you realize the harsh realities and the possible alternative course of actions. It will help you to come out of the storm. Thus a financial planner will help you to steer the ship through troubled waters. The duration of crisis may be for the short term or it may be prolonged.

The family members are vulnerable. Consequences are financial crisis. It is exceedingly strenuous to overpower stress. There is no other way but to sell their owned house for survival, which’s not at all an ideal solution. It’s a distressed sale.

Now the situation is such that the entire family needs Rs. 42,000 per month. Expenses are although a little higher, but it can’t be ignored as it includes medical & nursing expenses and child’s education apart from the minimal daily necessities.

Therefore, considering the current situation they need a corpus of Rs. 3 Croes. Whereas, after selling of residential house & buying a new flat they can only realize Rs. 60 Lakhs (net sale value). The hard reality is that the family may survive for only next 10 to 12 years, if they don’t make any alternative source of income.

Being a Financial Planner, sometimes hardly we can make all proof strategy except few at these distressed phases. The situation is almost similar to the “Titanic” – sooner or later the family is going to be left in torment unless there is someone who can run the kitchen. In this unique family situation, can’t cut the mustard.

Unable to meet bare necessities of life, family is slowly sinking due to lack of contingency fund & increasing medical costs

“A cigarette is a pipe with a fire at one end and a fool at the other.” – Anonymous

Well designed financial plan allows you to control your financial situation

Whether or not you have sound financial resources, steady/unsteady income, don’t assume that you can project every financial situation correctly or you have control over all financial situations, unless you have well designed Financial Plan. The reasons are lack of financial awareness and numeracy. It is advisable to make alternative strategy also.

Good designed Financial Plan pays you lifetime; while bad plan or no plan will always cost more. Whether to Plan now or Plan later totally depends on you and your frame of mind. But before you start investment or before you draw any financial conclusion, evaluate your financial situation at first.

In stringent times, there is a danger that you may take short-term money-saving decision and as a consequence you may arrive at a distressed financial position in the near future.

Sound and detailed Financial Plan is really an important contribution to you and your family.  Particularly when budgets are tight and value for money is the key. Ugly, poorly-designed or ill-considered plan may be prime cause at the time of approaching stage or financial distress. Never assume that you are on the right track. Today it may be all proof plan but tomorrow it may not be. So review your plan at least once in year and also lead a disciplined life. Both personal and macroeconomic factors play a pivotal role in our personal finance. Therefore, a Financial Plan never works without indoctrination.