In this article you will come to know about Emergency Fund.
– What is Emergency Fund?
– How to build an emergency fund?
– Benefits of having Emergency fund?
Emergency fund means money set aside in form of liquid fund i.e. in saving, FD or in Cash form to meet any Financial uncertainty in future. Emergency fund acts as a Financial Shield which protects you when you are struggling with money shortage.
Don’t confuse it with fund you are already having in your Saving Account or any Fixed Deposits in your bank Account. It is altogether separate from FD’s and any other Investments you are already having. Emergency fund is what you have to create separately, which will have no link with your existing fund. Here I will suggest you to create a new bank Account so as where you can keep your Emergency fund and can grow it by the time and saving Account will be the easiest form to park money digitally.
So, if you are at the initial stage of your carrier or don’t have emergency fund then start building that with as Small as you can, Your Emergency Fund should basically cover the amount of money you spend to fulfil your daily needs(incl. family). Again the amount to be set aside will vary person to person, So on very basic term it should cover your Monthly Expenses related to Food, house rent and other basic necessities. And by the time gradually you should increase that amount from one month to 6 months or a year, generally it is saying in Personal Financial to have at least 6 months of your monthly expenses as an Emergency fund.
It is important to have emergency fund because as you have seen in Covid19 times, we all have faced uncertainty whether it be health or finance everyone had suffered, apart from this Emergency fund can be used if in case you face business shutdown, job loss or shortage of money in future. Then, In that case Emergency fund will help you where you can take some amount out of it to meet basic needs. Also most importantly break this Emergency fund only when you are out of money and there is no other source of income left.
Lastly I will say, it is totally a discipline which you have to maintain and stick to it. After utilizing it, first of all fill your emergency fund to that level up to where it was earlier and then use surplus money elsewhere. Your emergency fund could be like 3 months amount in cash and rest could be in bank i.e. some part in form of Saving Account and left over amount can be in form of FD of one year. Here the sole motive of emergency fund is to help you in uncertainty and not to earn return from it, although 3-4% in saving A/c will be good enough, as of now our goal should be Capital preservation and we can earn great return from investing elsewhere.
So start building an Emergency Fund from Right now, there is no Rocket-Science required here.
This post is only for Educational Purpose and Author will not be responsible for any financial loss or gain if any arise to reader.
I hope this article helped you to gain knowledge.