THREAD on Emergency Fund

Life is uncertain.

Things don't always go as you plan.

There might be sudden expense which you might have to undertake.

It might be a medical emergency, car breakdown, or even a possible job loss.

In such cases, one thing that might give you peace of mind is an emergency fund.

Take the recent scenario of COVID-19.

A number of people who were living paycheck to paycheck, all of a sudden were out of their jobs.

These people have nothing to take care of their expenses till the time the find a new job.

This is where having an emergency fund helps.

Even if such a condition happens to you, you will have that buffer of searching for your next job.

Emergency fund is one of the first things which you must do - even before investing in stocks, mutual funds, gold, PPF etc.

Also, having an emergency fund allows you to quit a job which you don't like, and go on to pursue whatever you have always wanted to do.

Now that you are convinced that an emergency fund is needed, let's see how you can start building one.

The first thing you must do is save at least ₹10,000 as a starter emergency fund.

Just get to this amount and have a feeling of accomplishment.

In the meantime, calculate whatever your monthly expenses are.

Once you have that ₹10,000 starter emergency fund set up, start building the emergency fund such that it covers at least 6 months of your expenses.

The number of months of expenses which you save totally depends on the nature of your job.

If your job is very stable, you can be fine with six months of expenses in your emergency fund.

If your job carries some risk, like having high attrition, then you must have one year worth of expenses.

All in all, you must save 6-12 months of expenses as emergency fund.

This amount must be highly liquid, meaning that you should be instantly able to access this fund whenever you need.

This should not be locked in some money back scheme by an insurance company, or in the stock market.

Your priority should not be returns, but liquidity.

A liquid fund or even your savings account is fine.

You might earn low returns - but that is not the goal of your emergency fund.

It's goal is to give you the piece of mind.

One thing to note is that whenever use this fund on any emergency, the amount which you withdrew must be immediately replenished.

I hope this thread will get you started with building your emergency fund.

Do RT if you found this useful.