Financial emergencies come unannounced. Job loss, medical emergencies and other financial requirements could contribute to financial stress if you don’t have an alternative plan to tackle such situations. This is where having an emergency fund could come in handy. Setting up a steadfast savings plan with an emergency fund is an essential way to protect yourself from financial predicaments.
This blog would help you learn how to build an emergency fund from scratch.
Emergency funds can be defined as funds set aside to meet urgent financial requirements. It can be broadly categorised under your savings plan, however, this particular fund is meant only as a financial back up in unprecedented situations.
Emergency funds come in handy when you have a sudden drop in your finances and you are in need of money urgently. Instead of burdening yourself with debt, you can utilise emergency funds to sail through any financial crisis. You always need a proper savings to rely on during the tough times and emergency funds can be of great help
Emergency funds come in handy when you have a sudden drop in your finances and you are in need of money urgently. Instead of burdening yourself with debt, you can utilise emergency funds to sail through any financial crisis. You always need a proper savings to rely on during the tough times and emergency funds can be of great help.
Without proper savings, an unprecedented financial emergency can put you in distress. During these times, if you get involved in a debt, it can have a long-lasting impact on your future finances. This is why you need an emergency fund that will save you from getting into such a mess.
As per experts, if you already have been through a financial shudder, it can be difficult for you to save for future emergencies as well. This can put you in further debt and may make you pull out funds from other significant savings funds such as retirement funds.
One financial emergency can trigger a series of financial traumas. Hence, an emergency fund is an absolute necessity.
Planning for savings can be a little confusing for some. The general consensus is you need to have at least 3x to 6x of your monthly expenses/income as an emergency fund. For instance, during COVID, personal finance experts were of the opinion that everyone should have at least 10x of their monthly income parked as an emergency fund.
Here are some steps given below that you can consider while investing in an emergency fund:
The first step is creating a budget. You need to decide a comfortable amount you can save towards an emergency fund. Calculate your monthly expenses and other financial obligations to decide this amount.
Turn savings into a habit through discipline. This habit will be helpful in many scenarios; not only during an emergency. Set a goal and keep saving towards achieving the same.
Ideally, with increased income, your savings should increase as well. Hence, you can consider making adjustments in your emergency fund once in a few months to increase the savings amount.
Once you are on track, you just need to monitor your fund once in a while and continue with the process.
Point to note: There is no upper limit of emergency funds. Park as much funds as you can in line with your requirements to stay financially prepared.
This amount varies from one individual to another. But ideally, you should have 3 to 6 months of living expenses in your emergency fund. So, for example, if your monthly income is ₹40,000 and ₹20,000 of that goes towards your living expenses, your emergency fund should have anywhere between ₹60,000 to ₹1,20,000 or more.
Wondering how to calculate your emergency fund? Check your monthly expenses (essential expenses) and income to plan accordingly.
But if you find it difficult to decide on an amount considering other bills and risks, you can use emergency fund calculator tools that are available online.
Using this calculator is an easy task. You just have to provide some information such as monthly living expenses, including EMI, insurance premiums and other obligations. The emergency fund calculator would give you an estimated number regarding how much you need to have in your emergency fund based on the details shared.
Emergency funds should be highly liquid so that you can access it anytime as required; Recurring deposits and savings accounts could be one option. However, you should not have it entirely in cash.
You should consider investing some of it in mutual funds, recurring deposit accounts or liquid funds. This will help your fund grow as well as save it from getting spent during non-emergencies.
Emergency situations may look different for everyone. Firstly, you need to decide the situations which are defined as an emergency for you. Not every unexpected expense can be an absolute emergency.
Setting these guidelines will prevent you from spending this fund on minor inconveniences and save it for actual emergencies. These can be accidents, medical expenses that your insurance does not cover, etc. Choose your emergency situations wisely and try to stick to the guidelines.
Emergency funds should be highly liquid such that it is easily accessible in times of need.
Saving money is not that difficult if we have the will to do so. It is a good practice which we should imbibe in ourselves because a good amount of savings can help us and our family survive difficult and unexpected situations.
Ans: You need to put at least 3x to 6x of your monthly expenses or income into an emergency fund. This would help you sail through during crunch situations.
Ans: Having an emergency fund is a type of saving your money but for a specific purpose. An emergency fund is built to save you from financial stress during unprecedented situations like job loss, medical emergencies, etc.
Ans: Since it’s a separate fund, you can open a different account solely meant for emergency funds. That way it would be easier to track the corpus you have built over time. Also, try not to withdraw an amount from the emergency fund to spend on things that don’t matter
Looking for instant 🚀 personal loans 24*7 anywhere, anytime? Get personal loans up to ₹20 lakh starting at 9.9% p.a. Install the Navi app now!
Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
Personal Loans
Instant Loan without CIBIL Score
A good CIBIL score is necessary to avail of a loan on favourable terms and conditions. But, what ab... Read More »Personal Loans
What is a Top up Loan and How to Apply for It?
Understanding Top Up Loan A top up loan is an additional fund that you can avail above your exis... Read More »Personal Loans
Instant Personal Loan on Aadhar Card
As a taxpayer, you must have understood by now the role of PAN and Aadhaar while filing your income... Read More »Personal Loans
How to Get a Personal Loan without Income Proof?
When in sudden need for credit, both salaried and self-employed professionals can apply for a perso... Read More »Personal Loans
List of 20 Best Personal Loan Apps in India 2023
Personal loans can be used to fulfil any financial emergency, but getting them sanctioned can be a ... Read More »Personal Loans
How to Apply for EPF Loan Online?
Employees’ Provident Fund (EPF) aims to provide a financial cushion for salaried employees after ... Read More »Personal Loans
What are Short Term Loans? – Key Features and Benefits
The tenure for short term loans generally ranges from about a month to a year. They are usually uns... Read More »Personal Loans
Get Instant Cash Loan in 1 Hour Without Documents: Interest Rate and Eligibility
Are you in any emergency cash crisis and in need of an instant cash loan in 1 hour without document... Read More »Personal Loans
How to Use a Loan Affordability Calculator – Features and Benefits
Mr. Srivastav earns Rs. 80,000 per month; he utilises a part of that amount to meet general expense... Read More »Personal Loans
Why Should You Take Personal Loan for Car Finance – Feature and Benefits
Owning a car is a significant milestone in a person's life. So it is no wonder that most people asp... Read More »Personal Loans
Personal Loan Interest Rates in India – Charges and Processing Fee
Applying for a personal loan? Have you compared the personal interest rates and processing fees? ... Read More »Personal Loans
Educational Loan Without Collateral – Banks Offering and Eligibility
An educational loan without collateral is a hassle-free way for students to pursue further educatio... Read More »Mutual Funds
Top 10 Chit Fund Schemes in India in 2023
Chit funds are one of the most popular return-generating saving schemes in India. It is a financial... Read More »Personal Loans
₹15,000 Personal Loan: Features, Benefits, EMI and Interest Rate
Financial emergencies can be short term and you might not always require a large amount to handle t... Read More »Personal Loans
Personal Loan Interest Rates in India – Charges and Processing Fee
Applying for a personal loan? Have you compared the personal interest rates and processing fees? ... Read More »Mutual Funds
10 Best Gold ETFs to Invest in India [2023]
Gold ETFs or Gold Exchange Traded Funds are passively managed funds that track the price of physica... Read More »Health Insurance
TPA in Health Insurance – Full Form, Functions and Roles
TPA (full form – Third Party Administrator) is a licensed intermediary between health insurance p... Read More »Banking
ATM Card AMC (Annual Maintenance Charge): Explained
ATM Card AMC (Annual Maintenance Charge) is a maintenance fee levied by banks every year. This debi... Read More »Mutual Funds
Top 10 Demat Accounts in India [Lowest Brokerage Charges]
A Demat account was created to eliminate the time-consuming and inconvenient procedure of purchasin... Read More »Mutual Funds
20 Best Index Funds in India to Invest in 2023 (27th Jan)
What is an Index Fund? An index fund is a type of mutual fund or exchange-traded fund (ETF) that... Read More »All information is subject to specific conditions | © 2023 Navi Technologies Ltd. All rights are reserved.
FEE FREE MONTH
No Processing Fee on Cash Loan