Hello Friends,
Have you seen my previous blog on https://equityrecos.blogspot.com/2020/06/my-financial-career-journey-so-far.html?m=1
You would get my background of career. As an Accounting student, we had learnt a concept called "Contingency Fund" The literary meaning of Contingency is - a future event that cannot be predicted or is not certain. The Accounting meaaning is an extension to the above meaning as to creating a pool of money for providing for such untoward event.
The reason for me to write today on this Topic is seeing Today's Pandemic situation. Corona episode maybe human-created, but the multiplication and behaviour of this Corona Virus is uncertain. Everyone was caught napping with the mishap happened in Wuhan city of China and its fatal consequences faced by the whole world today. As past occurances of any mishaps, natural calamities, uncertain series of events, may have got everyone's empathy, but not the kind of support and recognition. But, not everyone was so affected or bothered to know about the facts of those events.
However, Corona Episode, has in a way bought the whole world together. Today the teething problems faced by mankind is the the question of Survival, Existence and livelihood.
Lockdown has rose questions for sustainenance of Economy. The delay in search of Vaccination has rose questions on the uncertainity of the issue. No one knows what to do, how many days would it take for things to settle, Will there be a second round of the virus again ???
Well, today, I would want to just focus on the question of Money. I had conducted a questionnaire amongst friends and family regarding their thoughts on this Uncertain event, what impact, this had on their thought processes, overall lifestyle and Work-life.
Those who had kept themselves covered for a certain period of time with a Provision of Fund (Contingency Fund / in layman language funds for emergency); have been able to relax for a while and gauge the situation very well. Thus, Depending on one's Income / Expenditure Sheet, one should fix a percentage of funds that should be regularly kept aside for such untoward situations.
For Eg. If I have a monthly Income of Rs. 60000/- and my monthly expenses are Rs. 48000/-, I have a monthly savings of Rs. 12000/-. Thus, I can allocate, as per my work nature, nature of expenses, my lifestyle, etc, say a monthly funding of Rs. 6000/- i.e. 50 % of my monthly savings towards this Contingency Fund. Hence, my Yearly Provision for Contingency sums up to Rs. 72000/-
I have deliberately given the mediocre example rather than taking Lakhs of Rupees as Monthly Income. So, it can benefit all class of people to understand this Concept maybe known or unknown to many.
As per my experience and knowledge, I have tried to put the following factors to be kept in mind for fixing a percentage for contingency and also the tenure for such provision :-
- Number of earning family members
- Number of members, the total family income supports
- Age group of family members
- Nature of Work
- One's Lifestyle
- Period of Investment Done and Amount of Investment in various forms available like Fixed Deposits, PPF, PF, various Savings schemes, Gold, bonds, Mutual funds, LIC, etc
- Liquid Assets
- Illiquid Assets
- Nature of Expenses that are majorly to be done on recurring basis or one- time basis, etc
- Future plans, expansion plans, etc
I may have forgotten to include some points. Well, Contingency Funding is one of the safety provision, a person can allocate for, while doing Financial Planning....
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