Financial planning is all about having a holistic approach to savings & investments. At Finbingo, we call it the 360° approach to financial planning. For example, even if you have to decide to start a small sip, it is mandatory for you to plan for it after a 360° analysis of your financial needs.
This process of financial planning starts with a concept of having a “contingency plan” which can be created by answering a list of questions consisting of the “What if” scenarios. It is generally the case that majority of the investors do tend to give this “contingency planning”a slip.
A very deceptive kind of feeling that ” All will be well and I will be able to manage any eventuality” makes one lethargic to contingency planning. Also another aspect of it is about missing out on higher returns on that amount…”why should I sacrifice returns by investing in low yielding liquid funds for contingency planning”, these kind of questions tend to give legitimacy for avoiding all important contingency investments.
This lockdown is a classic example as to why having contingency planning is absolutely essential. The lockdown has come abruptly just like any other unforeseen event and it has now stretched beyond the originally decided 21 days.
“#Stay home & Stay safe” is become the need of the times but which is also bringing business activity to a standstill. So businesses are down and the immediate future remains uncertain where layoffs and salary cuts may well be the norm, the only way one can face this without much mental stress is by having a contingency corpus in place so as to manage your immediate expenses like rent & other household needs etc.
In such times, we should have access to our savings to take care of our sustenance for the next three months. Emergency does not come with a prior intimation. You need to be sufficiently liquid whenever such time comes. Liquid funds are giving you returns covering at least inflation, and that’s a good investment.
Generally, corpus equivalent to the expenditure equal to six months expenses is considered as contingency fund. On the lower side, one should have a contingency fund equal to three months investment.
Whenever you are planning any investment, first ask yourself one question –
Whether you have secured your contingency requirements