Why you should create an emergency fund? An emergency fund is created for unexpected events like losing active income and medical insurance. “An emergency fund is more important now due to covid-19. You may not get passive income like rent as people start to work from home. You get lesser job opportunities. Besides, it takes additional time to get a new job.
You need an emergency fund because your income may reduce due to uncertainties. However, your expenses will remain the same or increase day by day. For instance, equated monthly instalments (EMIs) stay the same, but the school fees increase as your child goes to higher classes and household expenses also increase due to staying at home. Where to keep the emergency fund. While creating an emergency fund through investments, quick access is most important. One should not worry about the returns.
“70% of the amount may be invested in the ‘ultra short term fund’ mutual funds category which is designed to give safety of capital the highest importance. Redeemed amount is available within one working day. 15% of the amount may be invested in savings banks for any online and mobile payments. Remaining 15% of the amount can be accessed through credit card. However, no balances should be carried beyond the payment cycle.
Mint takeaways
People should treat emergency funds as one of their key financial goals in life. While every individual would have a different ballpark figure for an emergency fund, which his earnings and expenses would majorly drive, you must maintain a primary cash cushion for any contingency. Building an investment corpus is vital today, but you need to create an emergency fund before that. Most experts believe you should have at least six to 12 months’ worth of living household expenses in your emergency fund account.
“If you are the only earning member of your family, then you should ideally save at least 12 months’ worth of expenses in your emergency fund account.”
Disclaimer: – Mutual funds investments are subject to market risk. Please read the offer documents carefully before investing.
