We are living in unprecedented times due to COVID-19. The most important question is how will you meet your household expenses in case of an income loss? To reduce your risks, you need to start building an emergency fund.
The economy is sluggish and job market is unpredictable. Many of us don’t know about the future of our jobs or businesses and what would be the status of our finances in the long run.
As per financial experts, it is advisable to maintain an emergency fund that would last for at least 6 months. For instance, if your monthly household expenses including house rent/ home loan EMI, groceries, and other expenditure is INR 50,000, then you need to stack up an amount of around INR 3,00,000.
Remember, you need to keep this fund in a place that would be easily accessible. That can either be your savings account or in a fixed deposit from where you can withdraw it immediately without any worries.
Investing your emergency fund in equities or mutual funds is not a good idea as these investment instruments are volatile and might reduce your capital in the short term.
It is a long term process.
- It is not feasible to set aside such hefty amount instantly. You need to save money gradually and also cut down some expenses to build a healthy emergency fund. For instance, if you own two cars and are also working from home due to COVID-19, then it is a good idea to sell off the one that you are not using often. It will help you shore up some funds and also help you save money on its periodic service and maintenance.
- Another good idea is to put the money that you are saving from your commute eating out, impulsive shopping and traveling into your emergency fund.
- Many households are also not taking the services of house help in the pandemic to stay safe. If you are one of them, then you can put that money too in your emergency fund.
All these savings will easily help you build an emergency fund in just a few months. It will give you confidence and a sense of financial security.