Now, these days everyone is smart enough to value money but some people thought that is why we should save money for an emergency fund, if we hold money for an emergency fund in a saving account we get only 3% or 4%, and for FD 6-8% per anum so why should we lend our money in these accounts.
So before building the fund we should have known-
“Why an emergency fund is so important?”
An emergency fund is an amount of money that we are supposed to use never in our day-to-day life, we should only when it’s too necessary, and all our other savings have vanished like these scenarios Jobloss, business loss medical problems, auto repairs and home repairs are a few examples where you should use the money from this fund. An emergency fund can provide us with a sense of security and safeguard you from unplanned financial difficulties.
The next question that is coming to your mind is “how much money are we supposed to save in our emergency fund?”
In my opinion, it depends on your age if you are in your 30s you should save 3 times your salary let’s assume you earn 25000 per month then 75000 rupees is good enough, but if you are in your 50s you should save 6 times your monthly income in this scenario you should have to save 25000*6 = 150000
Now let’s build our emergency fund by following these steps –
- Target amount- Identifying the amount you need to save for your emergency fund is the first step. Saving three to six months’ worth of living expenses is advised by financial experts. Your circumstances, including the number of dependents, the stability of your employment and your state of health may affect this amount.
- Start small- You can’t start accumulating an emergency fund overnight. Setting modest goals at first will allow you to progress. Make it a habit to consistently save that amount, even if it’s only a few rupees.
- Separate account- Your emergency money should be kept distinct from your other savings and checking accounts by opening a separate account for it. By doing this, you can prevent mistakenly using the funds for non-emergency costs.
- Cut expenses- You might look for strategies to reduce spending to hasten the process of accumulating your emergency fund. You can do this by cutting back on unnecessary spending like eating out or subscription services.
Avoid using money from your emergency fund for non-essential costs. Use it only in genuine emergencies. If you keep using it for non-emergency reasons, you may not have it available when you really need it.
Although it could take some time, creating an emergency fund is a crucial step toward obtaining financial stability. By taking these actions, you may plan for unforeseen costs and enjoy the peace of mind that comes from knowing you have enough money set aside for unforeseen bills.