Everyone has a reason to cut expenses and save from personal earnings. Individual financial planning has come to be a major financial goal in recent times. Everyone is encouraged to earmark some money for emergency expenses. This makes sense in the face of recurring financial slowdowns and recessions that affect family budgets and peace of mind. After all, some expenses intended for the children’s studies or the aged parents’ medical treatment are not expendable.
Gone are the days when persons were given with enough time to adapt to a changed economic situation and react to it at their pace. The economic changes these days explode on your face. Companies do not serve any prior notices before cutting jobs. Having a little contingency fund helps in tiding over difficult times and leading a life with confidence. If you are aware that you can support yourself for a couple of months, you would be more confident in hunting for a better job and facing the crisis head on.
Like usual financial planning methods, the mobilisation of a contingency fund does not take a chartered route. Consider your income and expenses, earmark a suitable portion of your savings to form a contingency fund. Do it in regular intervals if possible. You do not have to fix an upper limit to the fund but it is a good idea to convince yourself to part with a minimum amount every month or so.
You can save this amount by cutting sundry items from your wish list or by grabbing a discount offer on an item you were eyeing to buy. Be sure to deposit what you have saved into the contingency fund.
It is quite natural to splash the money that comes your way unexpectedly, like a loan you had almost written off or a cash prize in recognition of your efforts. Rein in the tendency to spend the amount and add it to your contingency fund. You could even resell used books or electronic items through online selling platforms. That could also go to your contingency fund.
You can never have enough of contingency fund because you can never anticipate an emergency situation. The fund has to be larger in families with just one breadwinner. The fund’s relevance is greater for entrepreneurs and self-employed persons because they could see their revenue source dry up anytime. They have to set aside enough money into the contingency fund to let them survive until they find a new job or an income source. Ideally, you should have enough money saved to pay for children’s education or essential medicines for 12 months. The other expenses should be taken care of for at least six months.
You have to promise yourself that you won’t spend from the contingency fund unless an emergency situation arises. You can raise funds by depositing a fixed amount each month. You can deposit up to 15 percent of the fund as a joint savings bank account in the name both you and your partner. Both of you should be aware of the account details and the credentials for easy access.
You can opt for a sweeping fixed deposit that gives you access to up to 40 per cent of the fund you have raised when the need arises. If you are left with more funds, you can invest it in mutual funds, company funds or even gold. Never tap into the contingency fund to pay for local celebrations or to lend to your family members or friends. That would defeat its purpose.
