If you needed Rs 50,000 to a lakh right now, do you know where to get it from? Lets make a New Year resolution. Lets do some contingency planning.
This is money available at a call i.e. at a moments notice. If you do not have this provision you need to seriously rethink your money management. This applies to anyone irrespective of whether you are earning or not. There could not have been a more appropriate time to talk about this subject. The subject of contingency planning is probably one of the most ignored areas of life.
The reason it is ignored is because, as the name suggests, it is based on contingent events and such contingencies do not happen every now and then. But when they strike, the impact can be severe and the repercussions may last a lifetime. Who knows better than the people of Mumbai who in the recent past have had a bitter tryst with this harsh reality.
Lets understand contingencies better. Everyone knows that contingencies are basically emergencies like accidents or similar mishaps. But there is far more than what is known. Contingencies include events like accidents but in totality contingencies tend to include all type of events where you are in need of immediate cash. It need not be just bad or sad events but includes good events as well. Providing for contingencies is like bridging the gap between having funds and liquid cash. An easy way to categorise contingent events is by the quantum of cash required. Accordingly, the strategy to manage the contingencies tends to differ.
Levels & Definition
The first level is defined as events where you are in need of amounts equal to or less than Rs 25,000 based on your city of residence.
Some examples are hospitalisation. Even if you have mediclaim, sudden requirement of expensive medical tests, impulse purchase of something you like, etc. Possible solutions are to keep liquid cash. Choose to keep a basic credit card (standard types) with lowest credit limit.
Here you are in need of amounts ranging from Rs 25,000 upwards to about Rs 1 lakh. Some examples are medical reasons, emergency travel both domestic and international, breakdown of electronic equipment, loss of job, decision to change city with change of job, unexpected repairs in home or office.
Possible solutions are liquid cash, personal loans, credit card with moderate limits, friendly loans, fixed deposits and bank