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Part - II
Income Reduction Risks
If Job security is not a characteristic of your profession, your Income will definitely much a shaky, then your emergency funds should be large enough to cover all expenses (Living expenses, Insurance premium payments, loan repayments, school & college fees) till such time as your income stabilizes.
Example: Arun Mukherjee, 58, a kolkata - based folk theatre artist, is familiar with the risk of erratic income. Mukherjee tours different areas of west Bengal with drama troupes & gets paid for each show. This means some 120 substantial but irregular payments in a year. To insulate his family from the vagaries of his income stream, Mukherjee maintains a separate savings account in which he parks enough money to run his household even when he does not make money.
If u are setting up an EF to take care of income reduction risk, you don't need a very high level of liquidity. As Sridhar K, VP & Country head distribution, Karvy Securities, says: "You wouldn't need six months expenses at once, if u were to lose your job today". So you ca spread the emergency fund money in absolutely liquid options like Bank Savings Accounts, & those with lesser liquidity like liquid funds that can be liquidated in 24-48 hrs.
Expense Bloatong Risks
A Medical emergency, an accident that involves repairs to your vehicle or house... Insurance doesn't cover everything.
Most Financial Planners recommend that retired people maintain larger emergency funds than younger people.
Example: S. K. Malik, 60, a retired IOC employee, has taken care & kept Rs 1 lakh in a bank FD-cum-savings Account. Although IOC takes medical care of its retired employees, Malik has taken care to
ear mark Rs 25,000-30,000 for medical expenses that may not be covered, Another Rs 30,000 for emergency travel & the rest for assisting family members.
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* Contributed by -
Prashant Jadhav,
2nd Year PGeMBA (Finance),
Mumbai Educational Trust (MET) Schools of Management, Mumbai.
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