Why a contingency fund is very important.

Praveer was a lucky go guy till very recently. His financial situation seemed to be in control till the time there was a medical contingency in his family . 

There was an approximate need of almost Rs 4 Lakhs towards the situation and only Rs 1 Lakh was covered under the medical policy that he had.  He had no liquid source of cash with him except Rs 10 k in his bank account. 

When he fell short of this amount , he started looking at all sources :- 1. Tapping employer for salary advance didn't work out  2. His equity portfolio and gold/jewellery had vanished a year ago ,for initial down payment for the house 3.  His savings out of a salary and on site assignment had been converted into a posh car, 6 months back.

This is a classical case of under insurance in one sense and in another way not having any money at all ( easily accessible and liquid) for contingencies. At least 6 months expenses needs to be kept aside in FDs or other liquid instruments. 

This  fund should be "sacro sanct" and shouldn't be touched for anything else other than contingencies like medical  needs, creeping through a job loss situation, unforeseen and critical expense in family, etc. 

This goal of having a contingency fund is very critical for all (Even  for those who struggle to keep their day to day living). Praveer could have easily sailed through the situation with a contingency fund or a better insurance planning. But finally, He  had to settle in for a 19% personal loan to make the ends meet.

So, Please set up a contingency fund NOW or if you have some substantial savings already, earmark a portion for contingency.

1 comment:

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