What is a Contingency Fund?

Everybody knows that it’s important to save money, but by and large, most of us have a hard time doing it. Life just costs a lot you have your rent and mortgage, college tuition, car payments, cell phone bills, credit card bills, and even plain old grocery shopping. But as hard as it is, it’s still in our best interests to set aside money for any emergency that might arise. Governments and municipalities do just that all the time, in the form of a contingency fund. A contingency fund is expressly created to be used in emergencies, such as a natural disaster. In the world of high finance, a contingency fund is set aside in order to protect against big losses. But contingency funds are not just the province of governments and corporations – individuals can set up contingency funds too.

When a government creates a contingency fund, it is money to be used in case of dire emergency, like a serious flood, or devastating fires. The money can only be accessed if circumstances meet the conditions laid out at the time the contingency fund is created. However, many governments will draw on their contingency fund if revenue sources dry up and the government is in danger of going broke.

Corporations create contingency funds to be utilized for many of the same reasons as a government contingency fund – natural disasters destroying a factory, for example, or huge losses in the stock market due to massive political upheaval either at home or abroad.

When individuals create contingency funds, they’re setting aside cash to safeguard against any number of big events, like the loss of a job, or the sudden inability to work for a long time.

To learn more about contingency funds, be sure to speak to a financial advisor. He or she could be full of good ideas on how much to save, and how to save it.