As seen in the table earlier Abhishek and Nikita's cash flow position was visibly tight and there was no buffer the couple had planned. Their liquidity position included Rs 50,000 in savings bank. Abhishek's parents were dependants. Credit card payments were mainly from eating out, shopping, gift purchases and occasional vacations.
Abhishek only had a life cover of Rs 6 lakh through a ULIP (Unit Linked Insurance Plan). Nikita, although an active contributor to the household expenses, did not have a cover.
Most of their investments were market linked which were currently deep in red due to the current market fall. Both were covered by company health insurance by their respective companies (for themselves and parents).
Liquidity check
One point that struck me was the fact that they held a balance (Rs 50,000 in bank deposits) lower than one month expense (Rs 120,000 less the housing loan EMI amount of Rs 35,000) plus commitments (credit card payments, car loan EMI) in their bank accounts.
Hence, it was pertinent to build emergency funds over the next few months; as a general rule of thumb one should, on an average, have at least three months of expenses plus mandatory commitments (investment plus EMIs) in your bank account or highly liquid investments that could be encashed in case of emergencies.
In such recessionary situations, one could hold a little higher liquidity depending on the nature of your job and risk involved therein.
In Abhishek and Nikita's case, we would try to trim costs to create sufficient amount of liquidity. Alternatively, a small portion of investments could be put into liquid avenues, like say, a bank fixed deposit, that is not impacted by the stock market movement.
Also see: 'Opt for floating home loan rates'
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