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

What is Financial Planning?

What is Financial Planning?

One of my friends came to my place for a cup of coffee and while chatting over how life is going, where is it heading, he told me that his elder daughter wishes to go abroad for her graduation. And when I asked him that how is he planning to fulfill her wish, he just laughed it off saying that her graduation is 10 years away, why should he get worried about it now. This attitude of his made me think about the importance of planning ahead of our financial goals and how many of us are conveniently ignoring this very fact.
The Term Financial Planning defines itself as planning your finances well. It is a perfect marriage between your finances and your life goals. Efficiently managing your expenses and savings in order to achieve your future goals is nothing but Financial Planning. What are future goals? They differ from person to person. Some might want to take a luxurious trip abroad and some might wish for own home. But there are few goals which might be com…

5 ways to trick yourself into Saving Money

Saving money has always been a daunting task and most of us fail miserably at it. One can relate more to this after seeing the average savings contribution. Lavish vacation or a fancy car can always distract us from our long-term goal of owning a home. It was easier in the earlier times when the life expectancy was lower and there was no need to plan for the long term. But now with increasing life expectancy and rise in the nuclear family culture, it has become more important for us to save for ourselves rather than depending on our Children or the Government.
When it comes to money management, it is indeed difficult to infuse the savings habit if we are a firm believer of You Live Only Once ideology. Nevertheless, savings is important even if your mind stays more on spending rather than putting the money away for your goals. But as they say there is a solution to every problem. All you have to do is to trick your mind into savings. Here are a few tricks to nudge yourself towards th…

Let’s share our financial mistakes This 2017

How many times have we taken an insurance policy because our uncle was the agent. Or how many times have we signed on a document without reading it fully just because the one taking our signatures was a close person. But sometimes sooner or later, we had to pay some price for our stupid financial decisions. This post is all about admitting our financial disasters and learning from them. I want all of us to start this 2017 by consciously agreeing to the wrong we did in the previous year and moving forward with a lesson learnt. Let’s begin with myself – Me despite being a Financial Planner myself, have done a couple of financial mistakes. The worst one being not saving during the initial years of my career. I didn’t start with a great six figure salary, it was nominal. Still, I could have saved with whatever I was earning, but I was so much into spending what I thought was mine with nobody to question me. And Yes, I proudly admit being a spendthrift to the level that I bought a Car wit…