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How Long Will That Rainy Day Fund Last?

Monday, August 03, 2015
By Kankana Roy Choudhury

Kankana Roy Choudhury
Content Head, BigDecisions.com

Rajiv did not pay heed to rumours about his company planning to downsize until he was handed a pink slip.  As the sole breadwinner with scant savings to fall back on, he has been spending sleepless nights, deeply worried over the financial health of his family.

A new job is probably a while away but the expenses are ever present. The living expenses, child’s school fees and the big EMI Rs 1 lakh per month need to be paid. Making these payments without regular cash inflows is a challenge. They will need to be met from his small savings corpus.

Unexpected events such as a job loss or an unplanned expense will jeopardize your savings. A rainy day or emergency fund comes in handy at such times. While experts recommend setting aside about 3 to 6 months worth of expenses (or financial commitments) for such emergencies, the right amount should be more in harder times when jobless growth follows economic downturns.

We analysed data for more than thirteen thousand users within the age range of 25-50 across major Indian cities to ascertain their ability to cope with such situations. Our analysis revealed that more than 50% of our users are have less than 3 months of expenses saved for a rainy day. Below is the table.

Debt cripples
According to popular perception, matters related to financial needs are far more sorted if both partners are working. Our data reveals otherwise. As per our study, a huge debt burden can actually offset the advantage of having both the partners earning. Over 80% of the users under scenario 1 & 2 (the former has both spouses working while the latter covers individuals whose spouses aren’t working) are less likely to have a saving that that would last them even 3 months.
No debt, but no gain
Under scenarios 3 (spouse working but no debt) and 4 (spouse not working but no debt), though individuals are better off compared to their counterparts with debt, yet the number is nothing to write home about. Almost 50% users in both cases cannot boast of sustaining on savings even for 3 months in the event of something unexpected...

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