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28 April 2020 | 3 min read

Here Is Your Guide To Build A Contingency Fund

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Unlike the movie GroundsHog Day, our life isn’t all that predictable. You can neither predict unforeseen events like the next big pandemic, or a sudden loss of employment, and medical emergencies.

Even unexpected travel, family, or personal emergency can leave you vulnerable, anxious, or even panicked. It is for these unplanned and unforeseen events that contingency fund is a life-saving financial tool, sometimes literally.

What’s A Contingency Fund?

Simply put, it is money that is put in a liquid asset {an asset which can be converted to cash immediately} in the form of a fixed deposit or a Flexi-deposit for unmitigated and unplanned emergencies. This contingency fund helps in safeguarding against unforeseen events, be it a last-minute vacation, buying a gadget that’s on discount, or bailing out a friend/family member in dire need of cash, all without putting a dent in your lifestyle and also improves financial stability.

Why Do I Need It?

Reason to build a contingency fund

With a contingency fund in place, your chances of defaulting on payments, monthly EMIs, or even relying on taking additional debt are drastically reduced or eliminated. Whether you’re taking a sabbatical, or also starting your own business, contingency fund comes in handy to better prepare you.

It is equally important to keep in mind to optimize the fund. A small fund may not cover your monthly expenses, and an excessively large sum may put an extra financial burden. Hence, figuring out what makes for an optimal fund is essential depending on pre-existing conditions (current expenses), or evaluating your future costs. It helps you plan for an emergency beforehand.

How Much Should I Invest?

Invest in contingency fund

The ideal contingency fund should cover at least three to six months of expenses for a sustainable alternative. For example: Let’s assume that Anita, a sales executive living in Bangalore, has a monthly salary of INR 70,000 and expenditure of INR 40,000:

Rent: INR 15,000
Household expenses (including electricity, WiFi, and maid): INR 15,000
EMI on the car: INR 10,000
Miscellaneous expenses: INR 5,000

This means Anita has a non-negotiable expenditure of INR 40,000 monthly, which means any disruption in her income, or loss of this cash flow will impact her adversely. Therefore, for a secure future, Anita should invest in a contingency fund of say six months, which is INR 40,000 x 6 equals INR 2,40,000. The entire sum or partial can be withdrawn in a case of emergency anytime, but this means Anita needs to set aside a portion of her income in a Mutual Fund, or Flexi-deposit.

If Anita’s goal is to reach the fund in one year, then she needs to invest Rs 20,000 a month for the next year to build it. Similarly, you need to key in your expenses and come up with a reasonable sum.

How Can digibank Help Me?

Benefits of Digibank fund

At digibank, setting up the contingency fund portfolio is super easy, and it’s all done online. In fact, with our app, you can book your fixed deposit in three easy steps.

  1. Login to the digibank app – you can download the app here
  2. Tap ‘Open New Deposit’ & Select ‘Fixed Deposit’ or ‘Recurring Deposit’
  3. Choose tenure of 1 year for 6.25% interest – that’s it, and you are done.

A trusted bank worldwide, DBS has been named the ‘World’s Best Bank’ by Euromoney in 2019, and ‘Asia’s Safest Bank’ 11 years in a row by Global Finance, digibank believes in smart financial planning for all of its savvy customers.

digibank FD offers a high-interest rate on fixed deposits that can be liquidated anytime and anywhere. Customers can log in to their accounts on the app, create a request, and within a few minutes, the fund is released. This boosts confidence in customers as they’re prepared for the unlikely ‘Rainy Day,’ as they can log in to their accounts on the app and instantly transfer the money from their Fixed Deposit to their savings account.

Here are some of its most salient features:

  • Ease of access, and immediate withdrawal of the fund on the mobile app
  • No unnecessary documentation required to avail the fund
  • Most importantly, the immediate release of the fund in liquid form, that is, readily available cash transferred to your savings account

digiBank offers a wholesome contingency fund plan with minimal risk to the customers because no one should have to run from pillar-to-post in emergencies.

 

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