Emergency fund
Introduction
Most people save money for their future or for any kind of emergency. People also save and invest money for the studies and marriage of their children. But what does one do if one requires money money all of a sudden to meet an emergency? It can be met from an 'emergency fund' for the purpose. So how does one create an emergency fund? let us discuss.
What is an emergency fund?
Financial problems come up without any notice and unexpectedly. To meet such a situation an 'emergency fund' comes handy. It not only provides you instant cash for emergencies, but also lets you save your other funds that you have kept away for your child's future, for buying a hiome etc. Every person should create an 'emergency fund'. Most people don't do this and are forced to eat up their fixed deposits and other savings. They have to pay interest and penalty when they do this.
Your savings are not your emergency fund
Normally people save the money that they have in their hands at the end of the month, if any. This amount grows every month. Many people make the mistake of assuming that this amount is their 'emergency fund'. In case if on looses his job or faces a medical crisis, one uses this amount. Unfortunately, this amount is ofen very small.
How to prepare an emergency fund
There are no hard and fast rules as to how much money one should put in while creating an 'emergency fund'. This depends on how much you earn and how much money you can save. But by a rule of thumb, your emergency fund should be a fund three times your salary. If your job is not sable, you may increase the amount. If you are a businessman, your emergency fund should enable you to survive for 6 months in case your business flops. If you have taken a loan, always make alternate provisions for payment of the EMIs in case you are jobless for sometime. You can start creating your 'emergency fund' with a low amount in case you don't have much money. The amount can grow with time. After assessing your salary and money flow, put in a fixed amount monthly in the emergency fund. Try to cut down unwanted expenditure when you do this so that you are able to put a higher amount in your emergency fund.
How to create an emergency fund
You have to look at a number of factors while creating an emergency fund. Bear in mind that the amount you save in banks or in your fixed deposits is not your emergency fund. Your emergency fund should be an amount you can put in without problems. It will grow with time. You should be able to access your emergency fund anytime whether you keep the amount in a piggy bank at home or whether you put it in an alternate savings account.
Like it on Facebook, Tweet it or share this article on other bookmarking websites.