Contingency fund

<>

As is the economic situation of many, it is usual to think more of a "cushion", in other words, to save a part as an emergency fund or contingency fund. But do you know that both are not the same? So what do we mean by the second?

If you live by day with what you earn, or stretch what you have as much as possible, sometimes taking something out to have some savings for incidentals can make you sleep much better. But, What would a contingency fund be? And why is it not the same as the emergency one?

What is a contingency fund?

Let's start by knowing what a contingency fund is. You should know that this refers to having a una cierta cantidad de dinero que no se debe tocar a menos que be para solucionar problemas imprevisibles que han entrado en tu vida. A modo de ejemplo, podría deberse a un accidente automovilístico, donde debe usar esos ahorros para reparar el vehículo y hacerlo funcionar nuevamente; o que ha recibido una multa de traffic y debe pagarla en la fecha en que está a la mitad.

Now, what we say to you may well be to call your home (or company) an "emergency fund," but is it really the same? From now on we will tell you no, and then we will show you why.

Differences between contingency fund and emergency fund

TO The emergency fund is a lifesaver for your day to day.. It is about having a certain amount of money saved in case something unforeseen arises in your home or business, so that you do not have to depend on a bank, borrow money or do something else to fix that problem.

You may be thinking that it is the same as the contingency fund, but there is a big difference with it. And is that the the contingency fund needs a larger amount, since it is what would be used to "respond" to quite "large" contingencies, in the sense that they are expensive. In spite of everything, in the case of the «emergency», there would be those unforeseen situations that do not involve a large number, which are more «daily» expenses than others.

Así, ambos son iguales, pero a la vez el target que disponen no lo es. Aunque uno es para gastos necesarios que no son demasiado costosos, en el caso del fondo de contingencia se haría cargo de los mayores (es por esto que la cifra ahorrada debe ser mucho mayor).

Advantages of having a fund

We know. It can be difficult to create a contingency fund (especially if we tell you that you also create an emergency fund). And despite everything, there are many advantages that can make you decide to control expenses and save. Because, among the advantages that you are going to find, are the following:

• Greater peace of mind. Knowing that you have money saved, even if you don't use it, goes a long way to keeping stress at bay. You know that if something happens, you will be able to face it, totally or partially.
• You will save more. By feeling calm, with an economic network that supports you if something happens to you, you will want it to be even greater. In other words, you are going to promote savings because your mentality will no longer be that of "living from day to day", but rather that of "living and saving a little", fundamentally because we never know what the future holds for us. future.
• You can indulge yourself. Tenga cuidado, con el tiempo. Debido a que a medida que ahorras, si no hay ningún imprevisto, esa cifra sube y puede venir un poco cuando el fondo de contingencia se puede dividir en diferentes fondos, o inclusive utilizar algunos para «caprichos», para que cuando se scope un límite puedas úselo. Tenga en cuenta que no siempre debe estar ahorrando sin disfrutar de vez en cuando.

How the contingency fund is endowed

There is no doubt that a The contingency fund can only be created with the income you have. If you have a job, with what you earn at the end of the month with it; if you have a pension, it helps ... the same. But, how much percent should I leave to endow the fund?

In this circumstance, the amount will depend on your lifestyle. A person who lives alone and has a non-contributory pension is not the same as one who has a large family where only one works. But no matter how little you can save, it is essential that you do so.

Thus, you can obtain some amount of salary, benefits or pensions, unforeseen gains (lotteries, inheritances, donations, etc.). In other words, of any income that may come to you.

How to create a contingency fund

Focusing now on the practical, we are going to talk to you about how to create a contingency fund. This will largely depend on the above, in other words, on how you are going to endow it (where are you going to get the money for that fund), so it can grow more or less depending on what you save.

But, to do this, keep the following in mind:

Determine a budget

It is essential that Know what expenses and income you have per month. Write them all down.

Now, separate the expenses that are fixed from those that are variable (shopping, going to the gym, going out with friends ...).

Consider those expenses, are they all important or is there one you could do without? If so, it is already taking time to get rid of it.

Find the difference between income and expenses. For the month to go well you need at least everything to be at 0, in other words, that the income - expenses are equal to zero, even though it is best that you have a positive figure.

Decide how much you want to save

From that positive number, you need determine a savings percentage. As an example, imagine that of the income, once all expenses have been paid, you have 100 euros left. You can choose to save 25 euros in the contingency fund and the rest in the emergency fund (to buy clothes, if there is an unforeseen expense in the purchase, etc.) and, if you do not use it, you could incorporate it into the contingency fund .

That money that is kept in the contingency fund should not be touched under any circumstances. Only in case of a situation that requires using it as a serious unforeseen event. As little as you imagine that you can save, in the long run you will have more and more money, and that could make the difference between being overwhelmed and being more relaxed.

Do the same month after month

No, it is not stupid. If you do this month after month, do you know how much you may have saved? Continuing with the previous example, 25 euros per month, if we multiply it by 12 months (not counting extra payments), we are talking about 300 euros. Yes, it seems little. But now multiply that number by 10 years. You would have 3000 euros for any unforeseen event. If you can also put something else into that fund, it will help you feel much better.