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Building an Emergency Fund - 'Cause you never know!

By HARSH AGARWAL

5th Aug 2022

2 mins read

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  • 1 USD = 1 EURO for the first time in 20 years.
  • Sri Lanka's economy has almost collapsed entirely.
  • The Prime Minister of the UK was forced to resign.
  • America's inflation rate is 8.6%, the highest in 4 decades.
  • The IMF chief mentioned there's a chance we see a global recession next year.

All of these situations point in one direction - YOU MUST HAVE AN EMERGENCY FUND...

And plan your finances at the earliest. And like always, we are here to help you out with the same. Because we're against the false sense of security that prevents you from having a liquid emergency corpus to cater to the emergencies the futures have in store.

Why an emergency fund?

A common mistake is equating any emergency to a medical emergency. While it may be one of the most financially and emotionally draining, there are schemes and policies to protect one in the scenario. A better and more accurate definition of an emergency would be a financial shortfall to meet any kind of stressful situation. This shortfall can result from frictional unemployment, increased inflation with stagnant salary, or even an occasion that requires a good amount of money.

How to build an emergency fund?

You cannot build your emergency fund immediately. Ideally you have to keep a decent amount of money aside periodically (most preferably monthly) and try not to touch that fund unless all the other options are exhausted.

How much to keep in an emergency fund?

Although the "the more, the better" concept couldn't fit in better in any other scenario, building an emergency fund at least six times one's monthly income is often recommended. Again, this is just a thumb rule, and the amount can vary from one individual to another.

Where to keep the fund?

The rice box! Naah, gone are the days

Howsoever old-fashioned it might seem, cash gives the liquidity that no commodity or plastic card can. However, liquidity is a two-edged sword. It can destroy all efforts if one doesn't observe enough restraint. A better alternative would be mutual funds that offer excellent liquidity at low-risk, short-term debt instruments. A more viable option will be Spenny Wise. Why?

  • 10% Returns
  • Risks Minimised
  • Only 7 days lock-in period.
  • Daily interest credit

Many new-age banks and NBFCs also provide an option to create separate funds under various heads so that the account holder doesn't spend them by mistake.

Conclusion

While one can always aim to earn a decent return over the emergency funds investment, the returns themselves shouldn't be the prime objective of the fund, as a higher return is almost bound to come with a higher risk. Instead, an individual must aim for greater liquidity and capital protection for emergency funds.

We'll be back with some more blogs to help you stay financially sorted!

Till then, Stay Safe! Invest Safer!!

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Made with ❤️ in India