One can suffer from problems anytime. It is very important that the subject of money management be discussed and given a serious thought. ‘Contingency planning’ is very important but this subject is often not touched because contingent events do not happen now and then.
At the time when a problem or any drastic event takes place in life, it will leave your life fully upside down. Sometimes, the impact is so large that it can leave marks for a whole life time.
Contingencies are emergencies that can come up anytime. They include accidents or any such kind of events. They are basically those events in which cash is required on a very short notice. It does not mean that just bad or sad events but also good events. Emergency can come up anytime and we shall be prepared for that.
Contingencies can also be categorized depending upon the cash required for a particular event. By understanding the level of contingency, it can be managed.
Elementary level
Emergencies that require Rs 25,000 or less cash comes under this level. Sudden visit to the hospital, money required for medical tests, purchases made by you of things you like, etc all come under this level.
You can get yourself out from this level by keeping liquid cash, credit cards with lowest credit limits or by taking friendly loans.
Moderate level
Emergencies that require cash ranging from Rs25,000 up till 1 lakh come under this level. Loss of job, sudden decision to change the city, medical reasons, unexpected travel, unexpected break down of electronics, home and office repair, etc come under this level.
Liquid cash, personal loans, credit card with moderate limits, friendly loans, withdraw from fixed deposits, bank overdraft can help you out from this level of contingency.
Critical level
Contingencies that require cash more than Rs I lakh come under the critical level. Medical reasons, natural calamities in the family like death of the earning member, money required for higher education of children, etc, come under this level.
Liquid cash, credit card with very high limits, life insurance, mediclaim policies, accident insurance, FD's or liquid mutual funds, loan against shares, property or other asset, sale of jewellery can get you out of this level.
Always do contingency planning before hand so that when need arises, you don’t have to rush. Multiple contingency events can be managed if you keep in mind the above solutions.
There is no hard and fast rule that you have to follow the above points. But it is very important that you make your own contingency plan within your overall financial plan. Access your situation first and then make a plan. Even if you don’t have a financial plan, don’t delay to make your contingency plan.
Don’t wait for an event to occur. Just be proactive and prepare a contingency plan right away.
