Emergency Fund is a special kitty of cash reserve which you keep aside and use only and only for any unforeseen financial crisis whether it‘s job loss, a sudden salary cut, a medical emergency or an unforeseen repair to your house. This is your financial shock absorber. When unexpected troubles happen in life, it helps you stay financially stable and free of tension without having to beg anyone or taking a costly loan.
Having an Emergency Fund is like riding a motorcycle without the helmet. When a person suddenly loses a job, the rent, the child’s school fee, month-to-month grocery bill and the essential bill does not stop. In such a situation, those who do not have an Emergency Fund have to borrow high interest personal loan or get trapped into the credit card debt cycle or need to sell-off their long term investments (SIP, Mutual Funds) which they have created with tremendous effort over the years with loss. An Emergency Fund helps to safeguard not only the present, but also the future of your wealth.
The amount of Sahi Emergency Fund will vary from person to person according to their monthly income and lifestyle. The right amount will be different for everyone. However, there is one easy formula to calculate your right amount of emergency fund:
Salaried Individuals (Private Job): If you are working in a stable job, then Emergency Fund should cover minimum of 6 months necessities (Needs).
Freelancers / Businessmen / High Risk Jobs: If your income is not fixed or you are into a volatile sector, then you should have the fund for expenses of 9 to 12 months.
Implementation How do you do the calculation?
Individually add the high priority expenses of each of your machines initially. (eg House Rent/EMI + Monthly Groceries + Electricity/Wifi Bills + Health/Life Insurance Premium + Basic Transport).
Maan lijiye aapka yeh total zaroori monthly expense ₹25,000 hai:
6 Mahine Ka Fund = 25,000*6 = 150000(1.5 Lakhs)
Finally note that in this calculation we are only considering ‘Needs’ and not ‘Wants’ (movies, shopping, restaurant etc). This is the money which will give you time to find the ‘right’ job in the next 6 months without any tension when you lose your job.
The primary objective of Eveency Fund is not to achieve high return but Safety (Suraksha) and Liquidity (Turant milna). If you want sudden money, then it should be available to you within 24 hours without any delay and penalty.
Emergency Fund rakhne ke 3 sabse behtareen aur safe raste:
High-Yield Savings Account (30%-40% Amounts): Maintain a part of the fund in a savings account of a reputable bank so that the money can be instantaneously withdrawn through cash withdrawal or through UPI.
Liquid Mutual Funds(40-50% Amount): Liquid funds are quite safe than equity mutual funds. It gives a better return than a typical savings account (around 6-7%) and the money is credited to your bank account by T+1 day.
Short Term Bank Fixed Deposit - FD (20% Amount): Choose a FD such that you get instant premature closure option.
What Kahan NA Rakhne Chahiye?
Never invest in these funds (Direct Stock Market, Real Estate, Gold, Long Term Lock-in schemes like PPF or ELSS) as these are very difficult to liquefy into Cash Market when required.
If you do not have the Emergency Fund then instead of panics starting building it from today itself:
B. Step 1: Pay Yourself First Rule: As soon as your income come in, auto-transfer 10% to 15% of that amount to your Emergency Fund account.
Now, 2 nd Step: Use Extra Income / Bonus Jo bhi bonus lagayen, Tax Refund, ya koi bhi additional income mila from side-hustle, directly available to be invested in this fund until your 목표 is reached.
Step 3: Absolutely Never Emergency Par Use Na Karein: Never dip into this account for buying a new mobile, going for a vacation or Tells expenses.
Job Chale Jane Par Action Plan:
First zero out all your Wants (non-essentials).
From Apne emergency fund calculate monthly fixed budget.
Focus on up-skilling and networking so that you can find a new job in no time.
Emergency Fund is th first step to financial freedom. It gives you a confidence and serenity to face any hardtime in life. Take your first step today!
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