In today’s fast-paced life, unexpected expenses can happen anytime—a small car repair, a medical emergency, or even a job loss. And if you don’t have an emergency fund, these sudden expenses can greatly disturb your financial planning. So the question is, “How much should be the emergency fund?”
Let’s talk about the importance of emergency fund in this post and how much you should save for the security of your life.
- What is an Emergency Fund?
First of all, it is important to understand that an emergency fund is a savings that you keep for unexpected emergencies. For example, if your car breaks down, a hospitalisation bill arrives, or you lose your job, this fund helps you feel financially secure without impacting your daily expenses.
- How much emergency fund should you keep?
Now the most important question is how much emergency fund should you have? If you manage your finances very actively, this fund should be based on your monthly expenses.
Standard Rule:
3-6 months of living expenses.
This is a general guideline, which says that you should keep 3 to 6 months of your living expenses in emergency fund. This means, if your monthly expenses are ₹40,000, then you should save an emergency fund of ₹1,20,000 to ₹2,40,000.
Example:
Suppose, your monthly expenses are ₹50,000. So ideally, you should keep an emergency fund of ₹1.5 lakh to ₹3 lakh in your account. This will give you financial security, no matter what unexpected situation occurs.
- How to Build an Emergency Fund?
If you think it may be difficult to save so much money, don’t worry. This process builds slowly. You can start with small amounts and increase your funds over time.
Steps to Build Your Emergency Fund:
Set a Goal:
First of all, set your target. Suppose your goal is ₹1.5 lakh. Calculate how much you will have to save monthly to achieve it.
Monthly Savings Plan:
Transfer a small part of your income to the emergency fund every month. If you save ₹5,000, then after 30 months your fund will be ₹1.5 lakh.
Automate Your Savings:
Set up automatic transfer from your bank account, so that you do not get bored of transferring manually. This makes it easier for you to maintain discipline.
Cut Unnecessary Expenses:
If you want to track your savings a little faster, then adjust your lifestyle a little. Limit small expenses like unnecessary subscriptions, weekend trips, and takeaway meals.
- Where to keep emergency fund?
It is important to keep emergency fund in such an account where you can easily access it, but you can avoid temptations.
Best Places to Park Your Emergency Fund:
High-Interest Savings Accounts:
This is a safe and accessible option where you get some interest on your money and you get money quickly in times of emergency.
Liquid Funds (Mutual Funds):
If you want a slightly higher return, then you can consider liquid funds. These are short-term mutual funds in which you get liquid assets, meaning you can withdraw money quickly.
Fixed Deposits (FDs):
If you don’t want to take too much risk, fixed deposits are also an option. But they are a little less liquid, so they are not as ideal for an emergency fund.
- When your emergency fund is ready…
Once your emergency fund is equal to 3-6 months of expenses, you can start investing your savings for long-term goals. But always remember that emergency fund is a safety net, so use it only for real emergencies. - When to use Emergency Fund…
If you ever have to use your emergency fund, first assess whether it is really an emergency. If it is a planned expense (like vacation, shopping), then do not touch your emergency fund.
My opinion:
Having an emergency fund is important for everyone-whether you are a salaried professional, a freelancer, or a business owner. It keeps you prepared for unexpected financial situations, without stress. So to secure your future, start small savings, and slowly build your emergency fund.
The goal of an emergency fund is financial security. If you save this much, you get financial stability when you face any unexpected situation, and you are able to focus on your financial goals.
So, start creating your emergency fund from today. Securing your financial future is important now!