What is a Contingency Fund?

A contingency fund is over and above the money you put aside for your child's education, the house you plan to buy 10 years down the line, your daughter's wedding, a family vacation to the Maldives etc. Those funds have a name to it.

Contingency funds are for miscellaneous expenses that come up out of the blue. But nevertheless you need to be prepared for them. For instance, your aged dad's medical bill, sudden house repairs and maintenance, loss of job or sudden long distance travel are not things you plan for.

Also Read: Why Personal Loans are a No-No

Where to Get the Money?

An important question that might come to mind when saving for a rainy day is 'Where do I get the money from?' Well, you don't need to punish yourself to save for this fund. As and when you are able to put aside money, do it.

Also Read: Financial Planning for Women

• From Salary

Once you get your salary in hand, you need to save a portion of it immediately. Yes, even before you pay the household bills, school fees etc. unless, of course, you are just about making enough money to pay up all that.

On an average you should save at least one-third of your salary. The amount you save can be used to meet various pre-decided financial goals. But you must save a part of it to your contingency fund.