Funding for Contingencies

If you don’t have enough savings to ride out a crisis, you are facing a financial risk that could have been avoided

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Life is full of unexpected events. For instance, the recent heavy monsoon spells wrecked people’s lives and homes. While their day-to-day routines were thrown out of order the bigger blow has been to their finances. The impact of unexpected floods can affect even the best laid financial plans. That is why such sudden expenses are known as emergency expenses. Financial emergencies can come in many shapes and sizes – unplanned repairs at home, car battery dying abruptly, medical emergencies and natural calamities. Instead of blaming it on fate, adequate planning for financial emergencies can help you guard your financial life.

Many of these costs towards emergencies cannot be predicted, but nearly anyone can face these kinds of emergencies throughout their lives. While one cannot wish away disasters, one can plan for them and save money to face these events with an emergency fund. An emergency fund is money that you have saved to help you cover unexpected costs that come your way.

How much?

It’s hard to say exactly how much an emergency fund should have because the amount of money you might need is based on personal factors, so it’s different for everyone. Moreover, an emergency fund comprises of both regular, predictable expenses and those that are unforeseeable. The predictable expenses, such as those on food, transport, EMIs and such can be gauged from your monthly budget, especially the expense column in it. The unpredictable expenses are the emergencies – medical expenses, car breakdown or home maintenance.

You could make a start by setting aside 3-6 months of household expenses and add an addition sum to meet unexpected emergencies. Like in case of financial goals, decide on a sum needed to create the emergency fund and the time frame in which it needs to be achieved to start saving and investing appropriately. Since the very definition of emergency means unexpected, you should be able to access your funds at any point without worrying over any charges while accessing it. Ideally this money should be in your savings bank account, liquid funds or short-term deposits.

Having funds to meet unexpected situations builds financial resilience and empowers you to make positive financial decisions even under duress. So, when an emergency hits, and you need money quickly, with a planned emergency fund in place you are more likely to come out financially unscathed. Remember - an emergency fund provides the reassurance of knowing you have money to fall back on during an unexpected life occurrence.

FINANCIAL EMERGENCIES

Even if you have health insurance, it doesn’t always cover the whole cost of care.

Car insurance pays, but higher deductibles could force you to pay from your pocket

Expenses towards seepage, cracks in the wall or painting once in few years

Retirees who haven’t factored inflation when building their retirement corpus.

If your parents live in a different city, there are chances you may have to make unforeseen trips.

Whether you are laid off or decide to leave a job, you need monies for necessities.

Despite relocation reimbursement, there are certain costs that you will incur.

Disclaimer : The views and opinions expressed are those of India Today and do not necessarily reflect the views of SBI Mutual Fund. SBI Mutual Fund or any of its officers, employees, personnel, directors make no representation or warranty, express or implied, as to the accuracy, completeness or reliability of the content and hereby disclaim any liability with regard to the same.The material prepared is for investor education purpose and for general information only. The material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinion provided herein is based on the various parameters/inputs and there is no assurance or guarantee that the investment goals will be achieved. Investors are advised to refer the Scheme Information of the respective Scheme and consult their financial, legal and tax advisers for planning of goals as well as before taking any decision of investment.

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