Life is completely unpredictable. A sudden business loss, job loss, unexpected bills, car breakdown, theft and much more can cause you a lot if you are not ready. It may cause stress and can drain you both financially and mentally as well. This refers to be the most important reason to be ready with Emergency fund.
Financial planners and experts of the industry always suggest having a contingency fund for every working individual. Keep some ready to use cash and use it in unexpected time will help you a lot for the successful growth. This will protect you from getting yourself stuck in debt.
A Separate Fund in Need
If you don’t have a sufficient amount to deal with any emergency then what will you do? YOu might ask your family and friends to help you and there is no surety that you will get the required assistance on time. You might have to opt for a personal loan that is easily available these days. However, the same you will add another burden of EMIs for the next few months.
Borrowing a sudden amount will not only affect your budget but also impact on your savings as well that you may have kept for other goals. If you draw funds from your investment and saving options such as PPF or mutual funds then you are putting several goals at stakes.
What Is The Right Amount?
As per the experts of the industry, the emergency corpus should be equal to around 7 to 8 months of your expenses. The ideology behind the same is to have sufficient funds to deal with regular expenses in case of any emergency. The corpus usually depends upon the individual’s lifestyle expenses, family members, liabilities, total income, etc.
How To Build the Corpus
The simple rule of financial planning is to save around 10 percent of income for emergencies. You should start the same from the first day when you receive your paycheck. Building a corpus should be your top priority.
A liquid fund or short-term fund debt are the best avenues to place your emergency fund as they provide instant withdrawal. The focus should be to make sure about the liquidity and safety of the corpus and not chase returns.
Keep in mind that the estate and gold ornaments should not be seen as a fall-back option for emergencies. They are illiquid and comprises of several costs. Moreover, you have to build a pillar to post to carry out the transaction.
An emergency fund is the need of every household and business as well. We all are not aware of the future and the unwanted situations waiting for us in the future. But we can prepare ourselves to deal with the same easily.