hy Emergency Funds are important?
When it comes to individual personal finance, an emergency fund is like an umbrella. One may not need it, but it’s always wise to have it. Because in case of dealing with unexpected events like medical emergencies or damage repairs, one needs a fund to fall back upon.
Not all risks in life can be insured. You can insure your life and maybe your valuables as well, but certain events fall outside the scope of insurance. Insurance policies are bound with certain conditions and restrictions, thus leaving several emergency contingencies outside their purview. So, what should an individual do in dire situations where insurance does not protect them? Fret not, as there are certain types of investment options that can help you during a crisis; enter emergency funds.
Why everyone should have an emergency fund:-
- Emergencies come uninvited. Its not necessary you will always have enough savings for them.
- Having an emergency fund is like a safety net. It allows you to worry less about your finances, as there is a back up plan available
- It creates a discipline. When one starts investing towards an emergency fund, it creates a discipline to save for unexpected events.
- The main motive of an emergency fund is to keep it in liquid assets. Liquid assets are those which can be easily converted to cash in times of need.
How to build an emergency fund?
An emergency fund is not built overnight but is rather done gradually. Here are the steps you can follow to build an emergency fund:
1. Calculate your monthly expenses :
Pre-decide your monthly expenses. Try to control your expenses as much as you can so that you save enough to invest in an emergency fund.
2.Calculate the total corpus you wish to save:
Determine the required corpus to figure out how to add up to your living expenses of at least six months.
3.Set a monthly savings goal:
This will get you into the habit of saving regularly and ensure that the task of creating an emergency fund feels less daunting. One way of doing this is starting an SIP (systematic investment plan).
4.Assess and adjust contributions :
Make sure to check after a few months and evaluate how much you are saving, and adjust if you need to add more funds.
Conclusion :
So when one have emergency savings then they can survive a financial emergency without having to use credit cards or expensive loans.That’s why it is very important that one should have Emergency Funds to live a stress free life. Nivesh Ki Paathshala is always there to help you out if you need us. If you have any questions, you can respond to this email, and we would be happy to connect with you.