Before going on topic let me ask you a simple question, How many times you were in need of money but you find that you haven’t invested or saved any fund and then you regret for this? Almost every one has gone through this condition once in a lifetime.
Many times you were in emergency and you need money for any cause but you don’t have money to meet that need. To overcome this condition, you can create an Emergency Fund which will provide fund to you when you are in need of it. You can create an emergency fund out of your income by keeping aside a small amount regularly and wont touch it until you are in real emergency.
Make sure you make emergency fund in such a way that they can be liquidated quickly or in short period of time, so that you can withdraw money quickly without any problem when you are in need of it.
When You Can Need Emergency Fund?
- If you loss Job,
- Due to medical illness of your, kids, spouse or of parents,
- Unexpected breakdown of assets like car, Bike or to repair your home which is bad condition,
- Unexpected loss in business etc.
Importance Of Emergency Funds
- Provide money when you really need it,
- Save you from taking loan at high rates,
- Its your money, so you don’t have to ask with others for money,
- Emergency funds can be liquidated quickly, so have access to them in short period of time too,
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How Much To invest?
This question is very frequently asked but its very hard to answer, some says that you should have one year salary in your emergency fund, while some other says, 6 months salary is more than enough.
Its you who would decide how much fund you need in your account, you can estimate your requirement and then make a target which you wanna see in your fund.
As per us, you should invest 5-10% of your salary or income in your fund, if you can then invest more then go for it, and make sure you invest that amount regularly.
ALSO READ :- Start Making Retirement Plans For Better Future
What Are The Ways To Build Emergency Fund?
- You can build an emergency fund by putting your money in a separate bank account, make sure that bank account is far from you, and you wont have access to card of them so that you wont withdraw money from them, you can transfer funds to them via online transfer,
- Invest in share or bonds which can be sold quickly,
- Sell your old stuff which you don’t need any more and transfer that fund to your account,
- Invest in those assets which can be sold quickly, don’t invest in home because you can sell home or land in short span if time like Gold or Silver,
- Make FDs with those bank who don’t put penalty on pre-matured withdrawal,
- Invest in auto-sweep accounts provided by many banks, in which you invest in Saving account and when your balance reach a pre-determined level access balance is transferred as FD and you can earn interest on it.