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You need to leverage your resources in order to provide for the future, without sacrificing your today
You are young, have just started a family and are taking on the world. You are at the start of your earnings potential with your best years in front of you. You have, of course, not yet built a corpus, which you doubtless will as the years go by. But what happens if hidden perils come in the way and start eating into the foundations of the corpus that you are just starting to build. A sudden injury, a major surgery, an accident – all these perils have the potential to not just eat into your corpus, but also affect your future earnings potential. The worst case scenario would be your own premature demise. That will be a serious setback for your young family. Can one actually provide for these events and still lead a normal life?
In the olden days, of joint families, these needs were not felt. The family always lived together and pooled their resources together. There was a tacit understanding that should one of the members meet with unfortunate circumstances, the other members would pool in and take care of the needs. Today, this is not so. Anyone depending on the goodwill of others to care of their own and their family’s needs is likely to be a pariah and will find that it simply will not work. This is an unacceptable risk. So, what are a person"s options? Should he then just deny his today and concentrate on building a provisioning bank which will take care of eventualities? This is not only inadvisable, but also impractical. For one, a person is unlikely to be able to build a bank that strong, and for another it is just not sensible to sacrifice life and the good things it has to offer for an event that though highly damaging has a very low likelihood of occurrence.
"The old joint family system provided a pool that took care of each other's needs. This is not feasible in today's world."
However, as we mentioned earlier, the consequences of such an event actually occurring can be crippling – so much so that the entire life path can go hopelessly out of control. This is where the concept of leverage comes in. Simply put leverage means that with small amounts one can control larger amounts. Remember the old see-saw from your childhood. It is possible for a child to lift an adult (several times heavier), by using the distance from the fulcrum to its advantage
A child weighing 25 kg is able to use a leverage of 3 to lift an adult weighing 70 kg. That’s what leverage does for you. What looks like an impossible task, becomes feasible the moment you start looking for leverage as a solution.
Your financial requirements can similarly be addressed by using the leverage insurance provides. The amounts that you now have for provisioning look hopeless when you juxtapose it with the financial impact of the perils we discussed.
This is what the image looks like when you haven’t considered leverage. Your amounts look hopelessly inadequate in managi