A life crisis can hit us when we least expect it. So when the sun shines, it is our duty to save for rainy days. In the year With memories of the devastating Covid-19 pandemic in 2020 still fresh, many people are now grappling with a new variant called BF.7. The new version emphasizes that we are not out of the woods yet, perhaps warning us of an even worse economic crisis.
Amidst all these developments, people who are struggling to survive financial hardships only maintain that it is important to create an emergency fund for rainy days.
Why is an emergency fund necessary?
You should have enough money to meet your needs in case of an emergency. Karthik Parekh, a SEBI-registered investment advisor, said, “It doesn’t mean you have to start saving because a new variant of Covid has come out. Even if there is no emergency, people should have an emergency fund.
Parekh Let’s say your car breaks down while you are on vacation with your family; This can also be an emergency. You need money fast to call a mechanic or hire a tow truck.
So an emergency fund always helps. People can spread an emergency fund across multiple asset classes to cover all emergencies.
Planning for an emergency fund
The amount of emergency fund can vary from person to person depending on their income. But such a fund is important for everyone. For example, suppose a person has a home loan EMI (eligible monthly installment) of Rs 1,00,000; It should participate in AMEs while building a fund to take care of situations like job loss.
“Any unplanned expenses like job loss should be taken into account while calculating the amount of emergency fund; there is no set percentage as different people have different needs,” Parekh added.
Emergency fund management
If the person considers themselves to be stubborn about spending, they can open a bank account to create an emergency fund. Parekh advises people to keep at least Rs 20 out of every Rs 100 in a bank account for emergencies. The remaining Rs 80 could be in ultra-short liquid mutual funds.
“A second bank account for emergencies is what I recommend for people who don’t have control and are sensitive. But choose a bank with a good ATM network and low fees,” Parekh added.