How To Build An Emergency Fund


Are you someone who is always behind your credit card bills, or someone who’s contact lists have loan processor’s listed in it, then you may not want to skip reading this article.

Though the credit card generation has got accustomed to a borrow spend and pay culture, savings has been Indian way of life in being prepared to face the unexpected for decades or even centuries now. And there’s no better time than this global pandemic to start thinking about developing the habit of saving for an unforeseen event.

What is Emergency Fund

Emergency fund is created to meet out the unforeseen events in our life such as temporary job loss, sudden illness, global economic crisis etc.

Why do you need an Emergency Fund

Having an emergency fund is like having your own personal banker who can fund you to take care of an unexpected situation, stopping the expected monthly inflow of money to you for a certain period. You can build yourself an emergency fund that can keep your soil wet on a dry day.

How much Emergency Fund is required

One must have 12 months Household expenses & EMI’s as corpus.

How to build an Emergency Fund

You can start building up your emergency fund by saving a certain amount of money in a recurring deposit for a period of 48-60 months. An ideal investment can be 10% of your monthly income. Once you have completed the investment term, you can convert them into a fixed deposit.

Benefits of having an Emergency Fund

• An emergency fund can keep you away from the endless loop of debt that you often subject yourself to handle unexpected loss of income or unplanned expenses.

• An emergency fund will also help you to avoid redeeming or taking loan from our existing Investments that you have been investing for certain goals such as kids’ Education, Retirement etc.

• A fair return in the form of annual interest. Yes, long-term Recurring Deposit that you undergo as part your emergency fund building endeavor can help you get a decent return in terms of interest from investment.

• Above everything, having an emergency fund can keep you away from the worry of uncertain future expenses that may interrupt your planned expenses.

Redemption of Emergency Fund

As liquidity is a key for immediate access to funds when you need the same, Recurring & Fixed deposit gives you the edge over any other asset class for easy and immediate liquidity. Now that we know what an Emergency Fund is, it’s a right time to make your first step towards building your own corpus for a future uncertainty.


Comments

  1. ManojJuly 20, 2020 at 6:15 AM

    This is really nice and thank you for putting it together. What is crucial is to have a habit of saving in two funds - one that builds the savings portfolio and the other is to build an emergency fund for future needs

    ReplyDelete
    Replies
    1. Noble YuvarajJuly 24, 2020 at 7:03 AM

      Thank you sir, I completley agree your point. We will be covering about that in our next article in detail.

      Delete

Post a Comment

Popular posts from this blog

Proper Planning Brightens the Future of Personal Finance

Traditionally Indians are bound to the practice of Savings. There is a deep-rooted sense of managing the income by spending less and postponing the luxuries of life. But this ‘saving culture’ has come under threat. The change in mindset is very evident with the youth and the EMI fixated middle aged salary earners, who are impressed with the easy spending consumer culture of the west. But the recent global pandemic has exposed the virtues of savings. Even after pay cuts people have realised the power of saving money and planning for the future. Today, those who saved and invested wisely are secure in their lives and livelihood. Their past course of action brings to light the quintessential question running in everyone’s mind “How much to Save to plan a secure future”. The truth be told there is no one size fit all planning strategy for savings. But a general thumb rule to start saving is to start analysing spendings.  Income - Expenses = Savings Spending before saving is a very wrong ap
Read more

Understanding ESG Funds

Greetings, We hope you found our previous post on open-ended, fixed maturity funds, both useful and informative. If you haven’t had a chance to read it yet, we’ve put it here so you don’t miss out! While 2020 ushered in a global crisis on a scale that humanity had never seen before, 2021 continues to teach us hard lessons earned over decades of practicing unsustainable economics. Pollution, strip-mining, deforestation, over-fishing, and hunting animals to extinction are just a few examples of the effect our economies have on the environment. As the world tries to move forward from the mistakes of the past, one of the things we’re trying to focus on is sustainability, and not taking more from the environment than we can put back. This focus is being delivered right at the root of our financial ecosystem by changing the way responsible investors invest their money. Measuring sustainability Sustainability today is measured in terms of E, S, and G, which stands for environmental, social,
Read more

Pradhan Mantri Vaya Vandana Yojana (PMVVY)

  Greetings, We hope you found our previous post on the Married Women’s Property Act useful and informative. If you haven’t had a chance to read it yet, we’ve put it here so you don’t miss out. What a lot of people don’t realize while planning out their retirement is that interest rates for developing countries go down as they progress and develop. If you were sitting around thinking people in the US, UK, Sweden, Switzerland, or any other first-world country for that matter, were raking in big bucks on money sitting in the bank, think again. In fact, in some developed countries like Denmark and Japan, for example, they have negative interest rates and it actually costs you money to use the banks. Additionally, the US interest rate FED is just 0.25% at the moment, down by 1.25% from March this year. What this means for pensioners or people planning their retirement is that in addition to accounting for inflation, they also need to account for lower returns on money sitting in fixed dep
Read more