Emergency Funds Planning? Wait before you read this — Saevr India
Planning your Emergency Funds?
Emergency Fund, It is one of the common term people discuss during this pandemic time. With Salary cuts, Layoffs and other unforeseen events including fat medical bills people started realizing it is an essential requirement to have an emergency fund set up.
How Much Emergency Fund do you need?
This is always the trickier part, there is no fixed number it depends on various factors like your expenses, Income, Number of dependents. It is a little more complex if you have an infant or an elderly.
It is always recommended to start with calculating your expenses, categorize your expenses into the necessity, and avoidable expenses. Add your EMI’s/Rent, Utilities, groceries, and any medical expenses. In short, make sure this fund would make sure to put a roof over your head, food to eat, and survive till you are out of this situation.
If you have no investments or any funds kept aside for emergencies, start by keeping one month of expenses in emergency funds and work your way up all the way up to 12 months. Financial experts recommend a minimum of 3 to 6 months again this varies based on your assets and liabilities.
Where to save the funds?
Always remember liquidity is the key, the funds you have should be able to help you in times of emergencies. Once you have figured out how much you need do not keep the money on your savings account, read this article to know more.
While you need to make sure the emergency fund is not losing value, you also need to make sure the funds are easily accessible. It is wise to split the emergency fund into the short term and long term.
Long term Funds should be kept in a place where it can earn a better interest rate and make sure your capital amount is not affected because of the market conditions. It is okay if it takes a few days to liquidate, a Debt fund would be a great option for this.
Short term funds should be easily accessible and should be at your disposal to liquidate when required. Remember your short term funds should provide a runway until the long term funds show up. An online fixed deposit it a great option to keep this fund.
Make sure you revisit your expenses and emergency funds at least once a year to make sure the number matches your current needs. As your lifestyle changes, the expenses tend to grow.
While this is all overwhelming and seems unimportant to plan emergency funds, we have seen the worse during this pandemic and you cannot come across a better timing than today to start planning for your emergency funds.
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Originally published at https://www.saevr.com on July 20, 2020.
