Contingency Funds

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If you  may lose your job. If, for a few months, the you do not receive a regular income, how will you subsistence needs be met? This is the reason that contingency funds are important in the financial plan.

The contingency funds should help you tide over loss of income for a few months. If you are likely to get alternate jobs very quickly may require contingency funds equivalent to 3-4 months of normal expenses. However, with skills that have limited role in the market may require contingency funds equivalent to 9-12 months of normal expenses. The contingency funds need to be parked in debt assets that can be quickly and efficiently sold to generate the liquidity. Liquid funds and bank deposits are ideally suited for parking the contingency funds.

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