Building a Emergency Fund

Imagine a scenario:

At the end of the month, you didn’t receive your salary.

This might be due to a sudden job loss or any other unfortunate reason!

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Now, ask yourself the following questions:

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• Will you be able to survive the following month?
• Will you be able to pay your ongoing EMIs?
• Will you be able to pay for your food and rent?

If any of the answer is "NO", you are not ready!

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You will be burning a hole in your pocket by taking unnecessary credit, loans, and lending from friends and family.

Now, what’s the solution? How should I be prepared for such a scenario beforehand?

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The answer is “Emergency Fund”

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You may ask, What’s an Emergency Fund? Let me explain!

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An emergency fund is where you keep aside 3 to 6 months of expenses in case of any unfortunate event, as we discussed earlier.

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Why 3 to 6 months? Ideally, in 3 to 6 months, you will be financially on track when the event is over.

For example, if you lose your job, you should be able to get a new job within a 3–6 month time frame.

?For any other reason, it is expected that one can get out of such a scenario in 3 to 6 months.

You got it, right?

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What’s next?

Let's build an Emergency Fund together!

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First, you need to figure out what your Emergency Fund amount should be. In order to do that, let's look at the following example:

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My monthly salary is 50,000. Out of which, 30,000 goes towards all the expenses combined, and I am left with 20,000 for investing.

Here, my monthly expense of 30,000*3 = 90,000?or 30,000*6 = 1,80,000 is the amount that should be in my emergency fund.

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Now, the fund won’t be built overnight. Every month, you should allocate some portion of your investment budget towards this Emergency Fund, and eventually, in no time, you will see the magic!

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Your Emergency Fund is ready, and you are ready to face any unforeseen circumstances.

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A Few Thumbs Rule:

1. EF should only be touched during real emergencies and strictly for no other reason. Buying the latest iPhone Pro Max is not considered an emergency.
2. EF should be highly liquid so that when the time requires it, it should be readily available.
3. Do not expect an extravagant return on your EF money. This is for emergencies, not investing.

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Where do I keep my Emergency Fund?

I keep my EF in Stable Money’s fixed deposit. Stable Money enables us to book a FD without opening a separate bank account.

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Benefits provided:

1. You can open a FD with as little as ?1000/-
2. FD can be broken after 7 days without any penalty or hidden charges.
3. On top of all this, it provides around an 8% return annually, and for senior citizens, this is up to 9%.

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So, what are you waiting for? Let’s be financially free by having an emergency fund by our side.

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Note: If you do not have an account with Stable Money, you can use my referral link to open one:

Invite link: https://stablemoney.app.link/U9nqpcdKICb

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Thank you. See you in my next article.

This is my first article here on money management.

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