In this article we are going to learn What is an Emergency Fund? and How to Raise An Emergency Fund.
many of the clients we have financially planned today have given us feedback that we have realized the importance of what we call the Emergency Fund.
What is an Emergency Fund?
An emergency fund is a personal budget that is set aside as a financial security reserve for future accidents or unforeseen expenses.
That is, if any unforeseen expenses arise in the future, the proposal is reserved for such expenses.
The first and foremost step in financial planning is to look at how an emergency fund works. The following personal objectives must be prioritized in the following order when financial planning.
- Insurance (Term insurance), Health Insurance
- Emergency Fund
- retirement planning
- Children’s educational expenses
- First home for yourself
- Large future expenses such as child marriage e.
- Other aspirations such as 4 wheeler, trip abroad, tour e.
Of course, as your income grows, you need to invest in the above order for these purposes.
But it is often the case that the order is reversed, with aspirations starting with retirement planning, emergency funds, and insurance being the last priority.
Friends, you do not know the dangers of the future and for that, emergency funds and insurance are very important and cannot be ignored.
The Importance of an Emergency Fund
An emergency fund is a valuable asset that should be set up in case of a financial emergency. It is a reserve that you can use in a time of crisis or for unanticipated and unplanned events, rather than for regular expenses. As a result, you must tailor it to address any unexpected financial gaps that may arise.
How to Raise An Emergency Fund?
We will see how to raise this very important fund.
It is important to know how much an emergency fund should be before raising it. Let’s see how to find out.
First we need to look at how much it costs us per month. This includes your loan weeks, monthly tuition fees, etc. Catch, and divide the annual cost by 12 and calculate the monthly amount. Annual expenses such as annual insurance premiums, annual school fees, annual gym membership fees, etc.
Once you understand the cost of this month, multiply it by 3 to 6, so you have enough money to last 3 to 6 months.
Those who have a business or income is irregular for 6 months while others for 3 to 6 months calculate the amount based on their income or job uncertainty.
This means that if one job is gone or you have to leave, you have to calculate how many months the emergency fund should be based on how many days you will get another job .
Once we figured out why this fund should be, we won half the battle. Then we will put this goal in front of us and see how and where to collect it.
Today everyone has more than one bank account. Out of the six months, one month’s emergency fund should be deposited in one or two bank accounts.
These accounts need to be separate from your salary account.
You can get money from such bank account through ATM or online banking immediately whenever you want.
The remaining 2 to 5 months of Emergency Fund should be kept in Liquid Mutual Fund.
Liquid mutual funds are the least risky funds. In liquid funds, the emphasis is on capital preservation, which makes them much less risky than other mutual funds.
You can get a return of 5 to 7% per annum.
In addition, the money is credited to your bank account within one working day after you are instructed to withdraw. Some liquid funds deposit up to ₹ 50,000 in half an hour. Today, liquid funds can be called a new age savings account.
It is necessary to deposit a small amount every month as an emergency fund. In addition, lump sum income such as incentives or bonuses or rewards, or the amount sold from old items e.g. Some of this amount needs to be diverted to the Emergency Fund.
Friends, this is how we can save ourselves from ruining our financial lives by raising emergency funds and voting for future uncertainties.
Friends, this time will surely pass and the financial loss of all will gradually be compensated. But the purpose of this article is to get you into the habit of proposing emergency funds from now on.