Thursday, April 21, 2011

Emergency Fund

EMERGENCY FUND : - A very commonly given financial advice, but not so commonly implemented across.

What is Emergency Fund?

Easily accessible chunk of money for use, in case of any kind of emergency. It should not be used to buy a car/house/laptop/ or any other thing.

How much Fund is enough for Emergency Fund?

enerally, 6 to 8 months monthly total expenses/spending(total expense include all expenses including loans and credit cards payments, household bills etc.,)

Why 6-8 months total expenses? If any emergency happens, one will be able to live the same life style for at least 6-8 months without taking any further stress.

Why to have an emergency fund?

If any unexpected expenses come up, you can use this fund as it will not affect your future cash flows. One can use the fund in case of some critical situation like Job loss or unexpected medical bills or any critical illness.

How to plan for such a big fund of 6-8 months expenses?

Start Little:

Start putting 1000 or 2000 a month & slowly you can add up into that.

Automatic deductions from your salary:-

An ECS into Fixed Deposit or Money Market Mutual funds.

Treat it like it’s your Monthly Bill:-

You can treat the emergency fund as your monthly bill & put it in a seperate bank
account with ATM card facility.

Add your Bonuses :-

If you get a Bonus or a salary Hike, you can put that excess amount into emergency
fund building.

- Manan Mankad