Imagine that you are a working person and work in the private sector. One day you wake up in the morning and you get a mail that your job is no more. No job means salary will not come from next month. If the salary is not coming, how will the expenses be managed, how will the house be run?
All these things will come to the mind of those who do not have an emergency fund. Those who have an emergency fund know that they will be able to manage their expenses for the next six months and will also be able to arrange a new job by then. Similarly, if your health deteriorates or someone in your family falls ill, then emergency funds also come in handy. Let us know today how to create an emergency fund.
What is an emergency fund?
Emergency fund is an amount of money that you keep safe only for unexpected and necessary expenses. It is kept separate from the daily expenses of income, so that your financial condition remains safe in case of any emergency. It acts like a financial security cushion, which helps protect you from stress during difficult times.
Why is emergency fund important?
Any unexpected expense can arise at any time in life. A good emergency fund gives you peace of mind in such a situation. Especially when you need money immediately. Understand it this way, if you do not have an emergency fund, you may have to take a loan for sudden expenses. This debt can harm your financial health in the long run. Having an emergency fund can help you avoid getting trapped in debt.
Apart from this, it also helps in case of job loss. In today’s time, job security is not guaranteed. A good emergency fund can help you meet your daily expenses without any stress in case of unemployment. Apart from this, emergency fund protects you from selling real estate. That is, when you have an emergency fund, then in case of any emergency, you are not forced to sell any of your other investments without thinking, rather you come out of that problem by using the emergency fund.
How to create an emergency fund?
Creating an emergency fund requires proper planning and discipline. For example, set a savings target every month. Keep a part of this savings aside for emergency fund. That is, after withdrawing money for your daily expenses from the salary you are getting every month, keep some money aside for the emergency fund. Do not consider savings and emergency fund as one, they should be different. Try to make your emergency fund at least more than your 6 months’ salary.
Where to keep emergency fund?
Where should the emergency fund be kept is a big question. Investing savings for the future is the right option. But this is not the case with emergency fund. An emergency fund is there so that if you need money at midnight, you can withdraw it. Therefore, even if you want to invest it, do it at a place from where these funds can be obtained immediately. Strictly speaking, some part of the emergency fund should be invested in SIP and some part should be kept in a separate bank account. So that, in case of medical emergency, money can be withdrawn immediately.
Also read: Want to save from salary every month, adopt these 7 easy methods from today itself.
