Part - I

Expect the Unexpected
How can u stay in control even during a financial crisis?

• Emergency: A serious situation or occurrence that happens unexpectedly & demands immediate action.

• Usually everybody takes Insurance to avoid an emergency-the sudden loss of earning member of the family, illness or accidents.

• But some risks are uninsurable-Sudden job loss, temporary disability that prevents u from working but is not covered by medical insurance & the hazards of which are dangerous running into sale of assets, etc.

• The best option is to have an Emergency or Contingency Funds.

Getting Started

• Emergency Fund is different from your Regular savings & is used only in case of Non-Insurable Emergencies.

• Saving for Emergency Fund is tricky, as you don't know how much is enough.

• An Emergency Fund must be invested in bank savings A/c's or funds that offers easy Liquidity.

• Long-term Options like PPF & debt funds offer better returns but are not liquid.

• Savings A/c gives 3.5% pa today, Liquid fund gives 5%; one-year FD gives 5-5.75%.

• Financial Planners Suggest that your EF should be = some multiple of your monthly expenses (say 3, 6 or 9 months expenses), depending upon the risk that can affect you.

• Rule of Thumb says u should keep at least 3 months regular expenses in an emergency fund & 15% of you net worth in income-generating assets.

The Risks

Most uninsurable risk is classified into 2 categories - Income Reduction Risks & Expense Bloating Risks.

Next

* Contributed by -
Prashant Jadhav,
2nd Year PGeMBA (Finance),
Mumbai Educational Trust (MET) Schools of Management, Mumbai.