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

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