BUILDING CONTINGENCY FUND IS ESSENTIAL TO COPE UNFORSEEN UNCERTAINTY

Financial cruch is invetiable part of any one at some point of time. It could even through out of gear to the living style and can create mental and physical stress. In the present fast changing scenario every one should plan for emergency or contingency funds which could be used in uncertainty of finances. Normally young entrepreneur and professionals working very hard to settle down in profession. They may be earning handsome but keep on adding surplus luxury gadgets in their living and have scope of more always. They do not plan for any emergency fund which may break their regular income for quite some time.

In the present uncertain time the EMI,s against car, home could also add to real challange to cope up the uncertainty. A young entrepreneur working in IT company felt a severe headaches. He was diagnosed with cerebral venal thrombosis and admitted into the ICU. The blood clots were acute and he needed two months of complete stress-free rest. He was forced to go on leave without pay for a couple of months. While meeting regular monthly expenses was not a big problem, the EMIs on home and car loans were a challenge. He had to break his fixed deposits (FDs) to make loan repayments.

Emergencies may crop up without warning signals. In an era where the cost of hospitalisation in reputed hospitals could be very high and unaffordable to many, building a repository for contingencies would be better. We do not have any system Unlike in the Western nations where people avail unemployment benefits, we are left at the mercy of our own savings. A contingency fund could be a boon for unforeseen adversities like an accident, temporary unemployment or disability. A contingency fund is the arrangement of finance out of saving parked in a liquid instrument as an urgent need for money may arise anytime. It is also advisable to opt for the insurance schemes which may cover health related issues of the family to cope up expenses related to sickness etc.

It is advisable to save around 10 percent of your income every month in a savings account or FD. Saving could be in the tune that the you could lead a commfortable life for 3-6 months without the regular income. You must be able to meet debt obligations or monthly EMI repayments and regular monthly expenses comfortably without feeling the pinch of job loss or an unforeseen medical problem. Do not use this money for routine expenses. Some people feel more secure with eight months of living expenses tucked away in cash. It finally boils down to your income, debts and comfort level.

You cab also lock the funds in an account where you cab get decent returns. If you've huge debts, do not direct big money to your savings account. Debt repayment must be on top of your priority list. Save a small amount every month as a habit. Do not get into new debts and stick to a strict spending plan. It is always prudent to save for a tough time may need money ungently.

Contingency fund should not be invested to buy a highend electronic gadgets. Since the fund may be required any time should not lock it in long-term instruments. Ensure that the fees/penalties for breaking the fund are minimal. Avoid risky investments though returns could be lucrative. Debt instruments like liquid or floating schemes of mutual funds are an option. Bank fixed deposits are the oldest and the safest place to park your surplus.Once you've met your target and built an enviable contingency fund, it is time to tone down your contribution to the savings fund. Redirect the money towards debt reduction / elimination and explore alternate investment avenues.