It can be a major repair to your house, a broken bone or a layoff- when facing such crisis; you will be able to manage if you’ve had an emergency fund.
Emergency fund is a safety net or a readily available form of assets in the form of liquid fund to withstand an emergency that may occur in your life. It is a foundation stone in which you start your journey towards financial freedom.
When a job change or a forced break or a medical emergency occurs, it will disrupt the income flow bringing a sudden change in lifestyle. In such scenario, in order to meet the monthly expenses, emergency fund in liquid form must be available so that house hold management doesn’t get affected.
How can one build an Emergency fund ?
The safest way to creating emergency funds by saving money required for monthly expenses for one year in savings account.
If you find it practically impossible, money required for at least three months of monthly expenses must be there in savings account in liquid form. If the emergency fund is for three months, it can be created in savings account. If it is for nine months or a year, the fund for three months can be created in savings account while the rest of the funds can be invested in FD liquid fund.
Still sceptical about emergency fund?
Many find it difficult to withdraw invested funds when the emergency arises due to many underlying situations.
If you have invested in equity or stocks, unfavourable market conditions may stand as a hindrance.
In the case of FD, most banks will have a lock in period which makes sudden withdrawal all the more difficult.
If it is in gold that you have invested, any depreciation in its value might make matters difficult.
In short, if you have an emergency fund, it helps you prepare for any mishaps or criticalities that may hit your life.
Even those who are taking baby steps in investing must create an emergency fund to survive unexpected events.