Is Your Family Crisis-Proof? Build Your Financial First Aid Kit in 4 Easy Steps

Let’s face it: when life throws us a curveball, the stress doesn’t just stay limited to financial concerns. It seeps into almost every aspect of our lives, leading to sleepless nights, financial shame, peer judgement, and strain on close relationships.   

This is why having a well-planned financial first aid kit is non-negotiable. This is beyond stashing aside some money or buying a Mediclaim policy—it’s about creating a safety net that gives you and your family the peace of mind and confidence to face life’s uncertainties, be it a job loss, medical emergency, life loss, etc.   

In this article, we’ll take you through simple steps to build your own financial first aid kit, covering emergency funds, insurance, debt management, and smart money habits.  

Step 1: Create an Emergency Fund—Your Financial Buffer  

If you are a salaried individual, your emergency fund should cover 3–6 months’ worth of all your essential expenses: rent, groceries, EMIs, utilities, and monthly medication bills (if applicable). In case you are self-employed or a business owner, stretch that to 6-12 months.  

Where should you park it? 

The purpose of having an emergency fund is to have it accessible. Unlike your other investments, keep this money in an account where it is easily accessible. Park it in a separate savings account or a flexi fixed deposit. You can also give a liquid mutual fund a try for higher returns.

Additional Reading: 5 Investment Options For Your Emergency Fund 

 How to calculate the monthly contribution toward the emergency fund?  

Your monthly contribution toward building your emergency fund shouldn’t feel like a burden. Start small. Even ₹500 per week can build up over time.  

However, the ideal formula to calculate your monthly contribution is as follows: 

Your emergency fund goal / Number of months = Monthly contribution 

For instance, assume your monthly expense is ₹12,000.  

Your emergency fund should be 6 times of your monthly expense, i.e., ₹12,000 * 6 = ₹72,000.  

Assuming you want to accumulate this money within 2 years (24 months).  

Therefore, monthly you should save: ₹72,000/24 = ₹3,000. 

Pro tips to get started:

• Set up automatic transfers every payday so you’ll never forget.  
• Use windfalls like bonuses or tax refunds toward your emergency fund.  
• Identify real emergencies—car repair? Yes. Craving a burger? No!  

Step 2: Get the Right Insurance Plans—Your Financial Shields  

Insurance plans are your shield against unpredictable life events. Medical emergencies, sudden death, and motor vehicle accidents can derail your plans and drain your emergency fund in the blink of an eye. So:  

Health insurance: Non-negotiable  

A single hospitalisation can derail your finances. Many people make the mistake of only relying on the employer-provided health insurance. However, the cover may not be adequate, and in case you switch jobs and face a waiting period, you must have your own personal health insurance policy as well.

Choose a plan that offers comprehensive coverage like major acute and chronic illnesses, pre- and post-hospitalisation costs, daycare procedures, and preventive check-ups for you and your family. So, you aren’t forced to take high-interest medical loans.  

 Additional Reading: Tips To Take Your Health Insurance Policy To The Next Level 

Life insurance: Protect dependents 

Life insurance for the primary breadwinner of your family is another must-have. It’s quite affordable and ensures your loved ones can cover debts, daily expenses, and future goals if something happens to you.  

Other covers to consider  

Disability insurance: Protects you and your family from income loss in case of accidents.  

Travel insurance: Covers not just medical emergencies abroad but also lost baggage/passport, flight delays or cancellations, and even repatriation of remains based on the cover taken.  

Home insurance: Shields your family against theft or any natural calamities.  

Car/bike insurance: Don’t skip comprehensive coverage in your car/bike insurance to reduce premium. It ensures you do not have to pay hefty repair bills out of your pocket in case of any road accidents.  

Smart pointers:  

• Review cover details yearly—upgrade as your needs change.  
• Keep the digital copies of all your policy documents in your phone and a cloud folder.  
• Memorise the claim process and emergency contact details.  
• Check for exclusions and read the fine print to avoid surprises.  

Step 3: Tame Your Debt Wisely (Before It Tames You!)  

Calculate DTI ratio  

The debt trap is a vicious circle to break. If you’re carrying a heavy debt load, you need to check your Debt-to-Income (DTI) ratio. Lenders use this ratio to measure how much of your gross monthly income goes toward paying off debts. Here’s how you can calculate this: 

DTI = (Total monthly debt payments ÷ Gross monthly income) × 100 

For instance, if your gross monthly income = ₹36,000 and you are paying  

• ₹5,000 -> Credit card bill
• ₹3,750 -> Car loan EMI
• ₹15,000 -> Home loan 

Your total debt is ₹23,750  

DTI = (₹23,750 ÷ ₹36,000) × 100 = 65%  

That’s very high—ideally, your DTI should be under 36%. A higher DTI ratio signals repayment struggle. So, what’s the solution?  

Additional Reading: Navigating Loan Defaults: Understanding Your Rights and Options

Adopt 28/36 rule  

A simple thumb rule for managing debt is the 28/36 rule:  

• Spend no more than 28% of your income on household expenses.  
• Keep total debt repayments under 36% of your income. For instance, if your monthly take-home salary is ₹36,000, debt repayments should not be more than ₹12,900, and household expenses should be under ₹10,080. The remaining ₹13,020 must be invested and spent on your wants.  

Follow the “AVOID” plan  

• Avoid taking fresh loans until all are cleared.  
• Verify all repayment dates—set reminders to pay on time.  
• Optimise by exploring loan consolidation options for lower EMIs.  
• Identify negotiable Credit Card interest rates.  
• Defer big purchases until your stability returns.  

Step 4: Adopt Smart Money Habits  

At the end of the day, your financial safety net isn’t limited to savings or insurance—it’s about the everyday choices you make with money. The habits you build quietly are what give your “financial first aid kit” real strength. Here are a few you can practise:  

• Create and stick to a monthly budget – Track your inflow and outflow so you always know where your money is going.  
• Diversify your investments but keep some cash liquid – Invest money toward a better future but keep some handy for emergencies.  
• Build side income streams – Freelancing, consulting, or passive income streams can speed up your financial stability.  
• Review your financial health every six months – Regular check-ins help you spot leaks, adjust goals, and stay on track.  
• Avoid lifestyle inflation – Don’t spend beyond your means to “keep up” with peers; focus on sustainable financial choices.  
• Be careful with Credit Cards – It’s okay to use Credit Cards for your daily expenses as long as you pay the full due amount and avoid incurring high interest.  

To Summarise  

Financial shocks don’t wait for the “right time”. With small, consistent steps, you can build a safety net that can ensure you’re not just surviving but ready to bounce back. Here’s a checklist for you to keep handy if you are ready to build your financial first aid kit:  

• Emergency fund (3–6 months’ expenses)  
• Health and life insurance cover  
• Debt repayment schedule and reminders  
• Copies of all loan, policy, and bank details  
• Secure document storage (cloud, encrypted drive, hard copy)  
• Provider contacts and claim instructions