Contingency Funds

In today’s world anything can happen and if you have cash in hand you do not have to worry, but if you keep too much in cash there could be a loss of earning. Therefore it is very important to have contingency funds to meet unexpected expenses. These days there is no guarantee of a job and people get laid-off overnight leading to months of unemployment or there could be an accident or major illness. In all these circumstances contingency funds come hand. How much money should be kept aside for such contingencies is a big question. Though you would have planned for your major goals, it is very important that you plan for your contingencies as well. You might have credit cards to meet some major expenses, but in case of loss of job or accident or major illness, how would you repay these expenses?

Hence a financial plan should include a plan for contingencies, this includes a health and accident insurance plan. Now health and accident could take care of a part of the contingency, what would happen if you lose your job. You still have to fend for yourself and your family till you get a new job. Some people might say keep 3 months expenses while others might say 6 months, all this depends on the type of job you hold and how long you would take to find another job. If you have Hugh EMI’s or Insurance premiums needed to be paid I would suggest that you keep aside 6 months expenses including EMI’s and premiums. Now that you have decided how much you need to keep aside as contingency funds the next question would be where should I keep it?

Remember that these are contingency funds and you should be able to access them when you need them. The nor mal suggestion would be to keep one month’s expenses in a saving bank account, another months expense in a liquid fund and the balance in short term debt fund. This way when you need the funds you will be able to access them fast and you would also earn some income out of it. The best part would be that this would automatically grow over a period of time. My suggestion is that you review you contingency requirements every quarter and if you find that the amount required is increased, check if the increased funds are available, if not keep additional money aside.

Children and Finance

It is not a good idea to make a child focus only on money, but the lack of knowledge could lead to their exploitation. Just as today’s child is tomorrow’s future, money saved today is tomorrow’s capital and it needs to be channelized properly. Awareness of finance is very important for everyone and making children aware of financial concepts will help the child when they start earning money. They will hopefully not make the same mistakes you may have committed. Start with some essentials like how budgeting can help the child to live within his /her means and then asking for more pocket money could be reduced. Teach them of the problems associated with taking loans. Instead of just filling their pockets, give them a loan and deduct it from next months pocket money. Open a bank account and show them how by saving they can earn money i.e. interest.

Once they understand this teach them about various insurance options and how they help in case of some event happening. Now that the basics have been taken care of, teach them about basic investment options like fixed deposits, recurring deposits and post office savings schemes. Now that they have understood all the different types of schemes in which you had always invested and did not make enough money, introduce them to the world of mutual funds and the benefits of diversification of portfolio. Once they learnt how to make money, now teach them how to save money while investing. Teach them about charges and costs incurred while investing. The various types of charges for different types of investments and finally introduce them to the world of stock markets and how all other investments are linked to the stock market. Once you have done that, they will thank you all their life.

Financial independence cannot be met only by teaching a child to earn high income but by good money management.

Keep your investments under lock and key

Are you one of the persons who has the habit of keeping your money invested in Safe Bank Fixed Deposits? Then this part of the story is for you. Once a man got married to a beautiful girl, he was so possessive of her that he did wanted her to remain beautiful forever. So he locked her up in one room of his house so that no bad air or sunlight would affect her and she would remain beautiful. Initially he would see her everyday, but as years passed, he would see her less frequently and as more years passed he would see her just once a year. He had reached his retirement age, he decided now was the time he would spend with his beautiful wife, but when he opened the door, he saw an old lady. This is what happens when we keep our investments in Safe Bank Deposits, when we need the money, it is not enough as inflation would have reduced its worth. Just like the man, if he had allowed the lady to move around, she would have attempted to look good all the time. Same way if we invest our money properly, our money would work for us. So why don’t you make your money work for you instead of locking it up and then regretting when you need it.