Contingency

A contingency is an economic event, usually negative, that is in the process of occurring and has not yet been resolved. It can also be used interchangeably with the term eventuality, which means a possible event or occurrence or result.

While the two definitions are not exactly the same, both denote the occurrence of something significant that needs to be prepared or planned for. This is probably why the term contingency is usually used in conjunction with terms such as plan (contingency plan) or funds (contingency funds).

A contingency plan is defined simply as a plan devised for a specific situation when things could go wrong. It can be used for any situation but is most often used in business and by governments. Businesses need to have contingency plans for all aspects of it operations, from marketing to financial strategy. Contingency plans need to be in place in case of decreased market share, planned expansions, and even recessions.

A contingency fund is a reserve fund set aside to handle unexpected spending pressures outside of the usual operating budget. Contingency funds are also referred to as emergency funds, since the unexpected spending pressure commonly comes in the form of emergencies like disasters, health problems, etc. Having a contingency fund is very important not just for businesses and governments, but also for individuals and households. For households it is recommended to have several months’ worth of income in their contingency fund.

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