Here’s breaking down the very important ‘Contingency Fund’ for you. A Contingency Fund is basically a collection of your savings (ideally 3-6 months of your regular monthly expenses) that will help you tide over unplanned and unexpected emergencies. Some of these include:
a) Loss of job
b) Delay in getting a salary for few months
c) A temporary cut in salary
d) Hospitalisation of any family member
e) Any other contingency
If you don’t have a contingency fund, you can make one by starting a systematic investment plan (SIP) in a liquid mutual fund, because it’s instantly redeemable. If you already have a contingency fund, you should evaluate the amount that you have in it.
Investing the contingency fund money in a liquid mutual fund has advantages like capital protection, ease of access, liquidity, and quick transfer of money to your savings bank account. Some liquid mutual funds provide an instant redemption option wherein you can transfer a specified amount in your bank account instantly.
Do you have a Contingency Fund already?