Losing job is a reality, have a Contingency fund to keep you afloat
Nishant Mongia, a 40-year-old software professional, woke up to a call on a Monday morning from his office telling him he was out of a job. Mongia, the only bread earner in his family, had no clue what to do as he had not made provision for a contingency fund.
With permanent jobs becoming a myth, this is a situation many people fear. Most experts say keeping an ‘Emergency Fund’ or a ‘Contingency Fund’ is the first step in tiding over such nightmares. These are funds where some savings is parked in real liquid assets, to be used only in terms of real crisis situation.
What should be the size of your contingency fund? Experts believe that it should be at least six months worth of living expenses.
“But it could be lower if it is a dual income family. Chances that both husband and wife lose their jobs simultaneously is very less”, agreed a popular chartered accountant and a SEBI registered investment advisor.
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Anil Rego, CEO of Right Horizons Financial Services Limited says building an emergency fund must be distinct from other savings for education, vacations and retirement etc. What about credit cards? “The most cost effective way of meeting the contingency fund is the much maligned credit card – but one should not use it in any other circumstances,” says the charted accountant. Setting aside some income on the first day of your salary is also helpful. “These funds should largely be in a liquid scheme of a mutual fund and in some part in a savings bank account at a bank,” adds Rego.
One could even opt for a smart overdraft home loan instead of a regular one, saving on interest payouts, reducing tenure of the loan at the same time maintaining the optimum contingency fund.
In India, smart overdraft home loan facility is only offered by SBI, Bank of Baroda, IDBI Bank, HSBC, Citibank and Standard Chartered. A smart home loan account is one where you put your savings, depending on which you can reduce the quantum of interest paid and reducing tenure.
Source: New India Express