Life looks perfect when everything goes according to plan . Two years ago , Mr. X also had a great life . He was earning around 1.8 lakhs per month in Bengaluru . He was also heavily investing by doing a SIP of ₹80,000 every month . The SIPs too were showing great returns. He was supposedly doing right thing as a middle class person by being a disciplined investor. Generally for a middle class person , new money goes directly into their heads , but he kept his cool created wealth with that money .

But , something tragic happened on what was supposed to be a normal day in his life . His father suddenly collapsed and was rushed to the ICU . The hospital required a staggering upfront deposit of ₹2.5 lakh .

His life turned upside down in a split second .

His credit card was maxed out after buying a brand new laptop . He barely had ₹32,000 in his savings account . The money that he was investing via SIP in a mutual fund was not accessible for his emergency needs because of TPA delays and redemption timelines .

He had pretty much high income and was financially secured on paper yet he struggled to get ₹2.5 lakh when family needed the most . At 1:30 AM , he was frantically calling his near and dear ones on phone , asking them to give him money through UPI .

The Financial Numbers

1. Monthly Income: ₹1.8 lakh
2. Monthly SIP Investment: ₹80,000
3. SIP as % of Income: ~44%
4. Liquid Savings: ₹32,000
5. ICU Deposit Required: ₹2.5 lakh
6. Cash Shortfall: ₹2.18 lakh
7. Credit Card: Maxed out
8. Mutual Fund Money: Invested, but not immediately accessible

What Went Wrong?

1. The biggest blunder that he committed was prioritizing his investments over immediate and adequate liquidity . He was investing ₹80,000 on a monthly basis whereas he had only ₹32,000 which was readily available against the urgent requirement of ₹2.5 lakh .
2. His parents did not have any health insurance , which could have easily reduced the financial burden of hospitalization .
3. Apart from the emergency fund , he did not have any investment from which he could easily retrieve the invested money . Every investment was done in mutual fund where the invested amount was not immediately accessible .
4. His credit card was maxed out , since he used it to buy himself a laptop , leaving him with zero borrowing capacity . Moreover , a credit card should not be treated as money you have , it should only be used when you already have enough money to pay the bill in full .
5. Either he has bought a laptop beyond his purchasing capacity or his available credit limit is too low for his salary . A credit card should never be used to make unaffordable purchase look affordable .

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How He Should Handle the ₹2.5 Lakh Emergency

At this point , he may have thought of his financial blunders , but it’s not the right time to latch on to it . Right now , he needs to arrange the entire amount while causing the least amount of financial damage . He has to explore every source of low-cost funding for his father’s hospitalization .

1.Employer Medical Insurance

He should check whether his father is covered under the insurance provided by his employer .

2.Hospital Payment Negotiation

He should try to negotiate with the hospital administration to give him some time to arrange the payment or reduce the upfront deposit .

3.Ayushman Bharat / Government Scheme

Check whether his father’s illness is applicable under Ayushman Bharat card and whther the hospital permits this scheme .

4.Company Society Loan

Many Companies have a society within its premises which offers a cheaper personal loan compared to the one you get outside .

5.Gold Loan

If his family owns gold , he could try securing a gold loan from a secure bank .

6.Friends & Family

He could ask his trusted friends or relatives for a interest free financial help .

7.Personal Loan

If nothing works out , then he should proceed to take a regulated personal loan from a safe and secure .

How Should He Protect Himself From Liquidity Risk

1.Build an Emergency & Liquid Fund

From now onwards he should start building his own emergency fund which would be liquid in nature , since his parents are dependent on him , he should aim for 12 months of essential expense . He should be very aggressive while building the emergency fund , prioritizing it more than the SIPs .

Example : if monthly expense on essential items is ₹50,000 , then he should save at least 6 lakhs as his emergency fund .

2.Get Adequate Health Insurance for Parents

He should immediately get a health insurance for his parents , the premium might be relatively expensive , considering their age but it would be helpful in saving funds on hospitalization bills .

3.Never Max Out Your Credit Card

He should always keep enough available credit for emergencies and contingencies . As a thumb rule , only use 30% of your total available credit and only use it when you have enough cash .

4.Create a Backup Borrowing Plan

He should always make sure that his emergency borrowing plan is established well in advance . He should not wait for an emergency to happen to look for borrowers . 2-3 reliable and low-cost lenders like gold loan , relative and friends and company’s society personal loan should be identified beforehand .

5.Stress-Test Your Finances

He should not assume the healthiness of his finances based on the amount of wealth that he has accumulated . Always run a liquidity stress test by creating a scenario where you assume there is a sudden requirement of ₹3-5 lakhs and calculate how much of it you can fund without utilizing your long term investments or SIPs or taking a high-cost debt.

This formula would be useful for your test : immediately accessible funds ÷ emergency requirement . For example , if you need ₹5 lakh and can access only ₹2 lakh on an immediate basis , your coverage is 40% . This shows whether your wealth has enough liquidity to absorb any emergency .

6.Evaluate Major Purchases Before Buying

He should never decide his buying on the basis of his credit limit . Always make sure whether you can make that big purchase without withdrawing money from your liquid fund or emergency fund . Also remember that money spent on a depreciating asset is money that could otherwise have been invested and compounded .

Also check out : 7 Insurance Related Mistakes Middle-Class Indian Families Make

7.Review Your Financial Preparedness Regularly

He should periodically reassess his financial holdings , liquid fund , emergency fund , whenever his income , investments or family responsibilities change . Inflation may increase the medical and hospitalization costs , whereas , as his parents age , their insurance premium may also increase and cover may also become narrow . Similarly , marrying someone brings new a person into their life and with that also comes new responsibilities . Hence , your safety net should grow with time .

The Middle-Class Investor Lesson

Mr. X suffered despite earning ₹1.8 lakh a month , imagine what would happen to a person who is earning a modest ₹40,000–₹60,000 a month behaving similarly like Mr. X . Believe me the situation would have been far more devastating . The problem is actually not earning enough money , the problem lies in the behaviour of the person . The problem is not having the enough money at the exact moment when you need it the most . The liquidity risk comes when you are not able to convert your assets into cash quickly and solve an immediate crisis .

This is why the goal of investing should not only be putting every single rupee to work . Some portion of the money has to be deliberately kept idle rather than being used to generate returns because you need something to save you when life does not go as per the plan .