How to build an Emergency fund.
A thread π§΅
A thread π§΅
What is an Emergency fund?
It is a stash of money set aside to cover the financial surprises life throws your way.
It is a stash of money set aside to cover the financial surprises life throws your way.
Where it is used?
For example:
- Death of any family member.
- Job loss.
- Car troubles.
- Unexpected house expenses.
- Your loved ones might want some money in emergency from you.
For example:
- Death of any family member.
- Job loss.
- Car troubles.
- Unexpected house expenses.
- Your loved ones might want some money in emergency from you.
What it is not for?
Health emergency - It should be covered by your health insurance. (Every family member must have this).
Health emergency - It should be covered by your health insurance. (Every family member must have this).
Death - In case, if we die, then it should be covered by term insurance not by emergency fund. (The person who is major source of income in the house should have term insurance.)
π°Formula:
Emergency fund = X number of months * monthly fixed expense.
Where X changes depending upon the person.
Our first aim should be 3, then 6 and eventually 12 months of emergency fund.
Emergency fund = X number of months * monthly fixed expense.
Where X changes depending upon the person.
Our first aim should be 3, then 6 and eventually 12 months of emergency fund.
β οΈCaution: Things to note before creating this fund:
- You should know your monthly fixed expenses. If you don't know then just start documenting your purchases that you do regularly every month.
- You should know your monthly fixed expenses. If you don't know then just start documenting your purchases that you do regularly every month.
- It is extremely important to build an emergency fund before buying a new phone, car or taking a home loan. (Before taking a home loan make sure you have at least 1 year of emergency fund.)
Where to park our emergency fund?
- Not in stocks/mutual funds because they have ups & downs, emergency fund is just to safe guard ourselves not for generating returns.
Recommended places to keep it:
Cash > Savings account > Fixed Deposit > Liquid funds.
- Not in stocks/mutual funds because they have ups & downs, emergency fund is just to safe guard ourselves not for generating returns.
Recommended places to keep it:
Cash > Savings account > Fixed Deposit > Liquid funds.
@FI_InvestIndia suggests to keep 1/2 months of emergency fund in cash form.
Can we shift from investments to emergency fund?
Yes, definitely you should first cover your emergencies then you can go back to investing. Because emergency doesn't send us an invitation of coming.
Can we shift from investments to emergency fund?
Yes, definitely you should first cover your emergencies then you can go back to investing. Because emergency doesn't send us an invitation of coming.
When to touch your emergency fund?
Ideally never ever touch your emergency fund, unless there is a huge huge emergency in your life. (Our prayer is to never touch it)
π³ Credit card lovers can keep one separate credit card just for an emergency.
Ideally never ever touch your emergency fund, unless there is a huge huge emergency in your life. (Our prayer is to never touch it)
π³ Credit card lovers can keep one separate credit card just for an emergency.
If you want to dive deeper in such concepts I recommend you to follow him: @FI_InvestIndia
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