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What Are Emergency Funds And How To Create Them

Has it ever happened with you that you were in the need of money but then you realized and regretted that you haven’t saved any funds for this? Most of you may have faced such a situation. Whether you have or you have not been in such a situation, we can help you overcome and avoid regretting for the same in the future by creating ’emergency funds’.

Emergency Funds

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We often find ourselves in emergency situations, needing money. What makes the situation worst is realizing that we have not saved money which can help us meet our requirements. To overcome / avoid this condition, you can create Emergency Funds which will provide funds to you when you are in the need of it. Emergency funds can be created out of your income. You can keep aside a small amount of money regularly. Just make sure that you don’t touch it unless you are facing a real emergency.

Make sure you you set aside the emergency funds in such a way that they can be liquidated quickly or in a short period of time. This will help you withdraw money quickly without any trouble when you are in the need of it.

When You Might Need Emergency Fund?

  • If you loss your job,
  • Medical illness of your spouse, kids or parents,
  • Unexpected breakdown of assets like car, bike or to repair your home which is in a 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 others for money,
  • Emergency funds can be liquidated quickly, so you can access them in short period of time too.

How Much To invest?

This question is very frequently asked but it is very hard to answer. Some say that you should have one year’s salary in your emergency fund, while others say that 6 month’s salary is more than enough.

Ultimately, its you, who has to decide how much fund you need in your account. You can estimate your requirement and then make a target amount which you want to see in your fund.

According to us, you should invest 5-10% of your salary or income in your fund. If you are capable of keeping aside more than that, then you should. But make sure that you set aside certain amount of money for emergency funds regularly.

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 you don’t misuse the account by withdrawing money from it all the time. As for transferring, you can do that via online transfer,
  • Invest in shares or bonds which can be sold quickly,
  • Sell your old stuff which you don’t need any more and transfer those funds 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 of time like Gold or Silver,
  • Make FDs with those banks who don’t put penalty on pre-matured withdrawal,
  • Invest in auto-sweep accounts provided by various banks, in which you invest in Savings account and when your balance reach a pre-determined level, the excess balance is transferred as FD and you can earn interest on it.

ALSO READ :- Start Making Retirement Plans For Better Future

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