Senior citizens may face an urgent need for money in certain situations. It can be for a medical need, a debt which needs to be paid immediately, or any sudden expenses because of unforeseen circumstances.
So, here are three ways in which they can arrange funds in the event of such an emergency.
Your Own Investments
The first stop for everyone should be their own funds or investments. The first thing to do is to assess all your investments and decide which one is the most liquid.
Liquidity is defined by the ability of an investment to be redeemed without losing any significant value. For example, money lying in your savings account is the most liquid. You know how much you can withdraw from it.
Fixed deposits (FDs) which have been opened recently can be a good option. Banks usually charge a penalty on premature liquidation of FDs. If you liquidate an FD which is close to maturity then you may lose more money as compared to liquidating a fresh FD. However, you can use your old FD to get an overdraft (OD) facility against it. OD against FD can give you immediate liquidity without having the need to liquidate your FD.
What about your long-term investments such as mutual funds? The best way to decide if you should redeem your mutual funds is to look at their returns. If there is an emergency and your funds are facing short-term market pressure, you should avoid redeeming them. However, if the returns are good, you can redeem a part of it to handle emergencies.
Approach Friends And Family
Friends and family members can be another source you could tap into to arrange emergency funds. The advantage of taking money from friends and family members is that you can pay them later. Unlike in the case of a loan where the equated monthly instalment (EMI) starts immediately, friends and family members will at least wait till you handle the emergency and come back to normalcy.
The only disadvantage is that if you do not pay, or delay repayment, you may lose goodwill and relations. This is something you cannot afford to lose in your old age. You may need their help, monetary or otherwise, in future for various things.
Get A Personal Loan
An unsecured loan should be your last option. Personal loans charge a very high rate of interest. The advantage of a personal loan is that it is hassle-free. If you have an account in a bank and have been doing decent transactions, getting a personal loan should be a piece of cake provided you also fulfil the applicable eligibility norms.
It’s always better to maintain an adequate size of contingency fund that can help you overcome most of the financial emergencies. Choose the appropriate option out of your investments, friends and relatives, and loan to arrange the money while considering factors, such as how much money you need and when you plan to repay.
The author is an Independent Financial Journalist