Life tosses an unexpected curveball at you when you least expect it. The pandemic witnessed millions of people losing jobs leaving them with insufficient money to support their families. A sudden illness, loss of job, medical emergencies, loans, hike in school fees or natural calamities can all put a strain on your finances. If, on the other hand, you have an emergency fund set aside to use in such instances, you can live comfortably.
What is an Emergency Fund?
An emergency fund serves as a safety net when life throws surprises at you. It will take care of all your expenses and bills during a financial loss. Having separate savings to help you through difficult times is proven to be beneficial. People often confuse long-term savings and an emergency fund. Long-term savings are set aside for retirement, college fees, or the purchase of a home. An emergency fund, on the other hand, provides financial security for unexpected expenses.
How to start saving?
This can be built by putting aside a part of your earnings every month. An ideal emergency fund, according to experts, should be able to cover all of your expenses for at least 3-6 months. The recommended amount for a starting emergency fund is between 1 lakh and 1.5 lakhs. However, your lifestyle and cost of living play a big role in this.
- 1: Take a note of your monthly earnings.
- 2: Prepare a list of your expenses incurred monthly, which should include things like rent, transportation, groceries insurance premium payments, medications, and electricity bills.
- 3: Make a budget for at least 1-1.5 lakhs in your emergency fund in case if all all of these essential items would cost you approximately 30,000
To begin, determine how much money you want to put aside for an emergency. Once you’ve decided on it, figure out how much you’ll be able to set aside each month for it. Examine your previous month’s expenses and make required cutbacks until you’ve set up an emergency reserve. You can also keep track of your expenses to decide how much money you need to save. Most importantly, save consistently and only utilise your emergency money when absolutely necessary.
To recapitulate, every emergency fund is different and is based on your income and ability to save. With some proper planning, discipline and consistency you will be able to build the ideal emergency fund within a few months.
In the event of an emergency, insurance is a lifesaver. As a result, make sure that your monthly costs include solid health insurance and a life insurance plan.
One step further
Once you have availed insurance, take the next important step of e-Insuring it. e-Insurance is a safe digital vault that will help you access all your policies in one place at your convenience. You can make use of your efforts put to protect your family during emergency situations.
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