In financial planning, it’s liquidity before investment

Plan for managing emergency needs before drawing up long-term wealth creation strategies

In India, families often sit on multiple assets but when faced with crises like hospitalisation, a legal emergency, or joblessness, many realise they can’t monetise their wealth when they need it.

Liquidity, or the ability to access your money without delay or loss, is one of the most overlooked elements of personal finance. In fact, it’s rarely even discussed in most investment conversations.

Most people start their financial journey with one question: 'Where should I invest?', when it should start with, `Is my risk-preparedness adequate?' Unless we build liquidity into our investments, we’re just building castles we can’t enter on a rainy day.

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Lack of liquidity = poor planning

Across numerous conversations with professionals, especially high-income earners, I’ve seen this problem repeat itself. They may have SIPs and investments in real estate, but don't have access to Rs 10 lakh when it’s needed in the next 24 hours. That’s not just poor planning. It’s a structural issue, a mindset that stems from how Indian households have been taught to view money.

Financial planning doesn’t start with returns. It starts with a disciplined approach.

Before you choose a mutual fund or start an equity SIP, pause to ask three questions:

• Do you have an emergency fund that can cover six to eight months of your expenses?
• Do you and your family have adequate health insurance?
• Do you have term insurance to protect your dependents?

Why risk management deserves priority 

Risk management is a foundational stage in financial planning that often gets ignored. But it's the most important step to avoid panic, regret, and wealth erosion when life throws its curveballs. This is where many plans fall short. They chase high returns, but don’t have the cash to cover a medical emergency or loss of income. Such plans don't consider the four Ds -- death, disease, disability, and disaster -- which can strike any time.

They affect cash flow, lifestyle, and financial stability. Without adequate preparation, families are forced to break long-term investments, pay exit loads, or worse, take high-interest loans. All of this can be avoided with proper liquidity planning. Liquidity is a financial necessity. It’s what lets you navigate a crisis without derailing your goals. It leaves your long-term investments untouched even when short-term needs arise.

So, what does good liquidity planning look like?

Start with a clearly earmarked emergency fund. This should cover at least six to eight months of living expenses -- EMIs, bills, school fees, and essentials. If you are self-employed, or your income is variable, this buffer should be larger. Next, plan where to park this money. It should be somewhere safe, accessible, and inflation-smart. That means liquid or overnight mutual funds, arbitrage funds, short-term debt funds, etc.

Avoid illiquid investments

Avoid locking this money into long-term insurance schemes, traditional LIC policies, or ULIPs that come with longer tenures. That’s not liquidity. The purpose of an emergency fund is access, not accumulation. Too often, people deem this boring / undesirable or postpone it. But ask anyone who has faced a medical emergency or sudden job loss --and they’ll tell you this is the most valuable part of financial planning.

Once this foundation is in place, everything works better. Your investments are not interrupted. Your long-term compounding isn’t disturbed. You make decisions from a place of calm, not crisis.

The truth is: life doesn’t wait for you to be financially ready. And markets don’t give you time to rethink decisions under pressure. Because wealth is not just about how much you make. It’s about how well you can hold on to it. That’s where real planning begins.