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Money Saving Tips for Emergency Fund in India

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boost emergency fundEmergency fund is the first step towards implementing a financial plan as it helps to tide over an unexpected expense or to manage a family crisis. Now this fund is a back up at the time of real need and it helps to avoid depletion of funds set aside to meet other goals. For example, during a job loss, an emergency fund should be able to idly oversee your expenses for up to six months, while you look for another job. Currently, in India, very less percentage of the working population is prepared to face the immediate challenges financially. Though an emergency fund robust enough to cover 12 month’s of expenses is better, anything near 6 month’s of expenses is also good enough.

Are credit cards really meant for emergency?

Often, people consider credit cards as their best bet to beat emergencies. Now, I heard a shocking incident from an employee who boldly managed to get away with the medical urgency of his old ailing mother by using his credit card, however, later he realized that after paying off the credit card dues, his whole finances are out of track and he had suffered a lot in the process of making ends meet. If he had some spare cash to face the emergency, he would have managed his monthly expenses easily.

Ways to bolster your savings for emergency fund

The task of saving half of the year expenses as an emergency corpus is so daunting that people avoid to even start it. So, it sounds reasonable to systematically grow up the corpus rather than compiling it at one go. Building an emergency corpus essentially depends upon the increase in savings and reduction in expenses of oneself, however some of the lesser known ways are outlined to help boost it.

(1)Go on a spending diet – If you are a regular weekend spender than you can substantially cut down your expenses by planning two out of four/five weekends at home. You will surely see the high rate at which the money is saved which could be redirected towards the emergency corpus.

(2)Bargain-shopping or the ‘Big Sale’- Try something new from the local markets, which are great places for bargaining rather than purchasing an expensive brand or you can even do most of the buying during ‘Big Sale’ time. In any case, you can see your savings up.

(3)Money Out, Money In – Set up an automatic transfer from your salary a/c to your saving a/c as once the money is out from your spending account, you have zero chance of squandering it away.

(4)Sell the stuff – More often than not, you might find some things which are stuffed into your house for no reason; so, its best to sell it on online portals like ‘Olx’ or ‘Quickr’. This way you are not only making your home clutter free but also adding money into your kitty.

(5)Psychological advantage – Ensure that you keep all your savings for an emergency fund at one place so that you can actually track and monitor your savings progress rate. A positive increase in your savings is in itself a great motivational boost to work more towards creating it.

What’s next?

Once you have saved the required amount, you should keep 10-15% of it in cash with you. Divide the rest and invest around 40-50% of it in money market funds while the residual amount can be put into bank savings account with the FD sweep facility.

Be informed about the withdrawal as it should be liquid and readily available to you.

A word of caution

Never’ use your emergency fund for anything other than a ‘real crisis’ time, so be it an urge to buy a new attractive item or your car repair, the money for your emergency should be untouched. Moreover, when emergency fund is used, it should be replenished at the earliest and should always be maintained in proportion to the change in your expense patterns.

  • balu

    i have some other opinion.emergency fund is fund needed during emergency.such as a hospital treatment,accident,vehicle repair etc.for a 5 member family 75 to 1 lac will be enough.put it in a fd.additional 50 may be put in saving + sweep.from which other expenses such as cloths and other unavoidable expenses can be met.but it should be top up immediately.put salary and other income start good rd,left will be the emergency expense fund.money above the limit shall be used for investing.

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