A lot of people tend to overlook the importance of having an emergency fund, but it’s crucial for everyone. This fund is your first line of defense when it comes to financial security. It’s there to help you tackle unexpected expenses like medical bills or job loss.
So, why should you have an emergency fund?
It gets you ready for any financial surprises that might come your way. Plus, it helps keep stress levels down. Knowing you have some cash set aside for emergencies can really help you stay calm. Many folks end up taking out loans when unexpected costs arise, but having an emergency fund can help you steer clear of that.
How do you go about setting up an emergency fund?
Start by creating a budget that outlines your income and expenses. This will show you how much you can realistically save. Set aside a portion of your paycheck specifically for this fund. Also, consider adding any extra income, like bonuses or tax refunds, to it. Make sure to keep your emergency fund in a place where you can easily access it, like a savings account or a liquid fund.
How much should you aim to save in your emergency fund?
It’s a good idea to have enough to cover at least 3 to 6 months’ worth of expenses. For example, if you spend Rs 30,000 a month, your emergency fund should be between Rs 90,000 and Rs 1,80,000. If your monthly income is Rs 50,000 and your expenses are Rs 20,000, then your fund should range from Rs 1,00,000 to Rs 3,00,000.
A few tips for managing your emergency fund:
Check in on your emergency fund periodically to make sure it still meets your needs. Only use it for actual emergencies. And as your income grows, don’t forget to increase your emergency fund too.