An emergency fund prepares you for the worst period in your life. It is a foundation of good personal finance. If you want to know why you need it & when to need it, what is the purpose of using an emergency fund, How can it help you in your difficult times, and where to invest your emergency fund? So this is the right blog which will address all of your doubts. Here are the possible scenarios when it becomes useful:
- A loss of employment
- When you get sick and need hospitalisation
- Significant changes in your life
What Is an Emergency Fund?
Emergency fund acts as a buffer amount in your bank account; an emergency fund is money saved for an unforseen event or happening. An emergency fund isn’t money you use to buy a big-ticket item or travel out of town on a whim. It is only used for unexpected events like hospitalization (especially duringCOVID-19), job loss, car breakdown, and Important major repairs.
Why do I Need an Emergency Fund?
Here are multiple reasons why you need an emergency fund.
- Always Ready: The emergency Fund is a kind of backup which will keep you ready whenever you ever feel like the worst period comes up. Use your Emergency Fund
- Saving: This will empower you to save money. The savings comprise 20 % of your income, but a small accumulation over some time becomes great in size. This positive approach doubled the saving with the help of an emergency fund
- Peace of mind: With the help of an emergency fund, you always feel like someone is there who is holding you back in difficult times. An emergency fund is your true friend. This will provide you with peace of mind, saving yourself from the considerable interest of credit cards. According to a survey, it was estimated that 75% of Indians are worried about their financial conditions having no access to an Emergency Fund, and only 25% per cent are safe those who are opted for an emergency fund
How to Calculate the Emergency Fund?
The break down of calculation of emergency fund is mention below
1. Calculate Your Monthly Expenses
This will contain all your monthly expenses. By calculating monthly expenses, you will clearly understand what is crucial for spending and what is not. These include rent, mortgage payments, utilities, groceries, and transportation. Multiply this amount by the total number of months. This will provide you with an idea about expenses, which are yearly
2. Risk Analysis
Risk analysis, in this case, If you have a job which is stable in nature, then your emergency fund priority is to slowly increase your emergency fundraise it to a high level, but if you have an unpredictable job or the market is volatile, then in that case, you need to save more and more start with the heavy investment in an emergency fund
3. Consider Your Comfort Level
This is completely up to your comfort level. How much amount you are expected to feel financially secure Generally, 6-12 months of an emergency fund is great. This will cover all your major problems, but if you feel like you are still in a risky position then you can increase your investment with the time period
From Where can I Get an Emergency fund?
- Highest Interest Rates – The company must be equipped with the highest interest rate so that you can withdraw excellent amounts of maturity on the invested amount
- Certification of Deposit – The company must be equipped with a certification of deposit, which means some kind of proof must be there so that the person feels comfortable and feels like that mine money is safe and secure.
- Ease of Withdrawal – The place must be equipped with the ease of withdrawal is there such as a one-click withdrawal process; each and everything must be done online, and ease of tracking must be their
- ISO Certified – The company must be ISO certified, which means it conforms to all internationally governed standards. It also means that the company is highly secure and provides safety to users.
- Convenient – The system must be convenient enough to provide user with the access to everything, such as ease of navigation and ease of interpreting things from the deposit to the withdrawal process. It must be so convenient that senior citizens will understand every aspect of the system without any doubt behind.
- Digitally Tracking – The place must have the power to track your investment digitally . In case of any rise or fall in the principal amount must be notified to the user
- Customer Support – The best way to analyse the company is to determine how its customer support. If customer support is quick & efficient enough, this means that the company is doing really awesome
After completing research in the market, we learned one thing: Stable Money is the right choice for the emergency fund; every point is fulfilled, as we have mentioned earlier.
How Much I Need an Emergency fund?
The minimum time period for the emergency fund should be at least 6 to 12 months of your living expenses. Understand how much you need to cover all your monthly bills and costs, such as rent, food, utilities, and insurance. When we multiply the total by the months, we want to cover. If your monthly expenses are Rs 5000 and you want to cover six months, you’d aim to save 30,000. So this could be the usual way.
What Things to be Considered Before Investing in an Emergency Fund?
- High-Interest Rate: The place must have high interest rates, which will beat inflation. A high-interest rate also results in an excellent maturity amount. This will empower the nation to invest more and more
- Security of Information: The company must have an excellent security system and follow international security standards such as ISO standards regarding security. This will ensure the user that their data & information is encrypted and safe
- Digital Tracking – The system must be intelligent enough that it can digitally track all the things so that if there is any rise or decrease in amount, it can be easy to track and understand
Steps to Create the Emergency Fund?
Nowadays, stable money is provided with the highest interest rate, which is 9.10%. This will encompass all the things that were discussed earlier.
- Step 1: Download the Stable Money app from the Play Store
- Step 2: Registered with the Aadhar-linked mobile number; enter OTP
- Step 3: After Successfully entering OTP, Enter your Email & Verify it
- Step 4: After that, Enter your First & Last Name
- Step 5: Now you are on the home page of the Stable Money app
- Step 6: Go to the top right corner of your profile section and click on your emergency fund
- Step 7: Now you have to answer a few basic questions like your city of residence, monthly expenses, family structure, insurance cover
- Step 8: After that, your plan is generated with your best-recommended amount
- Step 9: Now the Promise page is generated, that I will prioritize my family’s financial well-being
- Step 10: Now you are getting the option to invest. Now, all the banks will show up & and you can invest your recommended amount freely.
Steps to Withdraw Emergency Fund?
- Step 1: Open Stable Money App. Go to the top right corner, which is “Profile Section.” section
- Step 2: Click on “My investments”
- Step 3: Select the bank from where you want to withdraw your emergency fund
- Step 4: Click on “Withdraw”
Your invested amount will be credited within 2-3 working days to your bank account
When Should I use the Emergency Fund?
- Job Loss: The time when your job loss is made at that time your emergency fund is always there to cover your regular expenses until you get a new source of income.
- Medical Emergencies: The emergency fund can also be used during medical emergencies instead of using a credit card and paying large interest, feel free to use the emergency fund
- Car Repairs: If a major breakdown of your vehicle is done, replacement or repair time of your vehicle comes up, the emergency fund can easily help you
- Home Repairs: For important repairs of your home, new formation & its maintenance at that time, an emergency fund can be used
- Unexpected Travel: Emergency Funds can also be used during urgent or unexpected travel, such as family emergencies. Your emergency fund can cover all your travel cost
- Legal Fees: There are also chances when Unexpected legal expenses, for example, hiring a lawyer for unforeseen circumstances, can be easily covered in your emergency fund
- Appliance Replacement: Important appliances such as refrigerators and washing machines, if all these things suddenly break down, then, at that point of time emergency fund is your last option
Advantages & Disadvantages of Emergency Fund
1. Advantages
- Peace of Mind: When you have an emergency fund, you always feel like someone is there for you and will support you financially. This will give you a peace of mind
- Avoiding Debt: An emergency fund is the best alternative to debt. You no longer depend upon credit cards for something unexpected events in your life
- Flexibility: Emergency funds are highly flexible because whenever you feel like you are in need of them, you can easily withdraw them. There is no need to change your ongoing financial plans
2. Disadvantages
- Missed Opportunities: There is always a missed opportunity. If you are investing in an emergency fund, you are losing your other opportunity in which you might get the best return is missed or dropped
- Not Always Accessible: There is always a limit. If you must invest the amount for a particular period, you must wait until it grows fully. If you are going to withdraw it before, it will not provide you with the best return
- Emergency : If you are creating your emergency fund, you have to wait for a particular period of time. What about if the emergency comes between that period
Final Word
In the last talking about the emergency fund. This is a great concept that is working nowadays. As we know, the future is uncertain. We are not aware of which is the best & worst time, so cope with the worst time, the birth of an emergency fund takes place. So From now onwards, we must take steps to ensure our financial security. Our happiness will remain forever if we are going to care about future. This will only take place when we are going to invest in the emergency fund for ourselves and our family members. So In case of emergency, we are entirely ready to fight with it
FAQs
Generally, there is not a fixed rule it is dependent upon multiple factors such as your lifestyle, Income level, and monthly cost. The emergency fund must be the 6-12 months of your expenses
Generally, the Recommendation is to save for 6-12 months and the safer amount will the 2-2.5 lakh
It’s very simple to calculate the just make an idea what is your monthly expense and multiply it for the no. of month you want to save the emergency fund, ideal time period is 6-12 months
Disclaimer
This article is solely for educational purposes. Stable Money doesn't take any responsibility for the information or claims made in the blog.
