Skip to main content

Emergency Fund – A Friend in Need

Emergency Fund – A Friend in Need




My friend lost a job. I know he will get his job eventually, but the good thing is that he was saving for his rainy days. And for the time period he will not be working, he can meet his needs from that fund.
Life is extremely uncertain. One day it gives us all the happiness in world and one day we are in deep trouble. To keep us emotionally strong in testing waters, Emergency fund is extremely important. Let’s understand its true purpose. If we have saved for emergencies/contingencies in life, then there is no need for us to fret about our monthly expenditure, which will be there in whatever situation we are in.
Now the next question arises. How much of emergency fund is enough? We are in some situation, and we don’t know for how long that situation will continue. Normally one should have 6 months expenses for this fund. And if your house expenses are variable in nature, you can always target for 6 months’ salary. This gives us enough buffer and we can focus on making our situation better.
Where should we save this money? Definitely not CASH AT HOME. Keeping money at home is making that money easily accessible for any purpose, and we tend to spend it for all other things other than emergencies plus it will not give us any return. You also cannot put that money in Stock Market, which is extremely volatile in nature. What will happen if you need the money and markets are down, and your savings are in negative numbers? Emergency fund is not for investing in risky instruments. And you should also not put this money in instruments with lock-in period like – Insurance, PPF. You can keep this money at your Bank in sweep-in account or even in Cash mutual funds which provides you enough liquidity to take the money out when needed.


Charu Hastir, CFPCM is founder member of www.theriteplan.com. Rite plan is an online financial planning portal created to achieve a single objective of providing easy and Do It Yourself Financial Planning to netizens. Rite Plan is wholly owned by Tikkun Olam Financial Planning Services LLP. Please visit: https://theriteplan.com/index.php?route=common/home/

Comments

Popular posts from this blog

Why your Financial Plan is always Work in Progress?

Ever heard someone saying, this is my last month in the Gym, after that there is no need for me to workout ever again…I will stay fit for the rest of my life without any fitness regime. No one can retain the perfect physique forever without exercise. It is always a constant effort to stay at the desired level for almost anything that you think of. You cannot be a great chef without trying out new recipes, you cannot be a great marketer without adapting to new marketing strategies, you cannot be a great fashion designer without adapting your fashion sense towards the trending styles. Leave all of this, you even cannot even think of becoming a good parent if you don’t change from old tricks to new methods for upbringing this generation kids. If you have to upgrade your act with every other thing in life, then how your investments could be any different.
The Financial Planning Process has 6 broad steps with the last one focussing on the importance of monitoring and revision of the plan …

Union Budget and Your Financial Plan?

Honorable Financial Minister Piyush Goyal presented this year’s Interim Budget on 1st February 2019. Every Year, on the day of the budget announcement, you can see almost every individual glued on to their Television or mobiles to check the budget updates with much excitement. Sometimes the Budget announcements cheer us and sometimes they make us sad as we think that there are not many benefits being offered for individuals in our tax slab.

Budget is also referred as Annual Financial Statement as it contains an extensive account of the Government’s finances i.e. Government’s revenue and expenditure for the fiscal year. How relevant is this budget when it comes to our personal financial savings? Should we wait for the Budget to be announced and then start our investments or should we do our investments without any relevance to the Budget? Let’s discuss this in detail.
Budget helps in Tax Planning

Budget surely helps in planning the taxes for the next financial year. Budget is presente…

What to do when Stock Markets suddenly go up?

“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” – Peter Lynch

This May we have seen BSE SENSEX moving from the levels of 39,031 on 30th April to 37,090 on 13th May and then back again to 39,352 on 20th May. Such volatility in such a short period makes us doubt our investment decisions and questions our long-term plan of staying invested in the equities. This Market volatility has the power to change our investment strategies and at times even question it. Sometimes we think that we have missed a golden investment opportunity and on other times we assume that we have invested at a very bad time. At the very best it keeps us confused on our next steps.
John Maynard Keynes has rightly said that "Markets can remain irrational for longer than you can remain solvent." But how should we treat our investments when we come across such turbulent times and what is the right course…