We have all heard about investments. One such investment is building an emergency fund. Do we know the importance of this emergency fund? If not let us first, let’s know what an emergency fund is:
What is an emergency fund?
It is a corpus that would be utilized to pay for unanticipated events in life. The emergency money helps avoid unnecessary monetary hassles that separate you from your long-term savings.
When do you use emergency money?
The money in an emergency fund is used at times of emergencies such as accident, loss of active employment and regular income, theft of your car etc.
What’s the amount of money to be stored?
It highly depends on your lifestyle and your income, expenses, investments and financial goals. But experts recommend 6 to 12 months of your monthly income to be stored in an emergency fund to avoid mishaps.
How to keep an emergency fund?
- Track your income and expenditure
- Maintain a budget where you not only mention your income and expenditure but also mention your savings and investments along with your goals
- Divide your goals into short-term (3 years), medium term (3 to 5 years) and long-term (more than 5 years).
- Decide how much you want to allocate for each fund, emergency, retirement and so on.
- Open a distinct savings account and call it your emergency fund. Banks don’t recognize anything such as “emergency fund” so for them this is a normal savings account.
- Begin redirecting your savings to this account regularly.
- Review the amount as and when possible.
When you maintain an emergency fund, ensure the fund is easily accessible in times of emergency.
What should I avoid doing with the emergency fund?
Purchasing needs want, comforts and luxuries are some of the things NOT to do with your emergency fund. Budget your needs and plan your wants according to set goals. DO NOT use the emergency fund for your retirement purposes later on. Keep an individual retirement savings account.
What should I take care of?
Ensure you keep small amounts of cash wherever you go because in times of emergencies you might not be in a position to rush to an ATM or go looking for one.
Delaying longer will only make you face the consequences of a sudden emergency where you are left empty-handed. For more information visit www.moneymindz.com or give a missed call to 022-62116588
For More Information Visit: