What is an Emergency Fund?🚨
Why should you start one?
How much should it be?
Where should it be invested?
When can I use this money?
A thread 🧵👇
Why should you start one?
How much should it be?
Where should it be invested?
When can I use this money?
A thread 🧵👇
1/
What is an Emergency Fund?🚨
It is money kept aside for Emergencies.
What is an Emergency Fund?🚨
It is money kept aside for Emergencies.
2/
What is an Emergency?🚨
Unexpected and Unplanned expenses that come up without a warning.
What is an Emergency?🚨
Unexpected and Unplanned expenses that come up without a warning.
3/
What are some possible emergencies to plan for?
💉 Health : Personal / Family / Dependent
⛑ Accident : Person / Auto / Property
🪓 Income Loss : Job / Freelance / Business / Rental - which you might depend on to run your monthly expenses.
What are some possible emergencies to plan for?
💉 Health : Personal / Family / Dependent
⛑ Accident : Person / Auto / Property
🪓 Income Loss : Job / Freelance / Business / Rental - which you might depend on to run your monthly expenses.
4/
Why pay for Insurance, if we have to build our own Emergency Fund?
Insurance is very important.
☝️ But it does not cover all expenses and neither is it accessible instantly at the point of need, therefore an Emergency Fund helps bridge the gap.
Why pay for Insurance, if we have to build our own Emergency Fund?
Insurance is very important.
☝️ But it does not cover all expenses and neither is it accessible instantly at the point of need, therefore an Emergency Fund helps bridge the gap.
5/
How much do you need for an Emergency Fund?
If you’re on a Fixed Income / Monthly Salary : atleast 3-6 months of your monthly salary.
If you have a Variable Income (freelancer/ self-employed) : atleast 8-10 months of your monthly expenses.
How much do you need for an Emergency Fund?
If you’re on a Fixed Income / Monthly Salary : atleast 3-6 months of your monthly salary.
If you have a Variable Income (freelancer/ self-employed) : atleast 8-10 months of your monthly expenses.
6/
Factors that should guide your Emergency Fund amount
- Nature of your income
• fixed or variable
- Nature of your job
• is there risk of being laid off?
- Marital status and dependencies
- Family health status
Factors that should guide your Emergency Fund amount
- Nature of your income
• fixed or variable
- Nature of your job
• is there risk of being laid off?
- Marital status and dependencies
- Family health status
7/
How do you build an Emergency Fund?
- Start with splitting your Income & Expense A/c into 2 separate Bank A/c
- Set a monthly savings goals
- Find ways to save by trimming unnecessary expenses and from tax refunds.
How do you build an Emergency Fund?
- Start with splitting your Income & Expense A/c into 2 separate Bank A/c
- Set a monthly savings goals
- Find ways to save by trimming unnecessary expenses and from tax refunds.
8/
Steps to build an Emergency Fund
- Keep one month’s expenses in your Expense A/c.
- Build a Recurring Deposit that gets you to your defined amount.
- If you are a mutual fund investor, consider parking the amount in Liquid Fund that invests in Govt. Securities.
Steps to build an Emergency Fund
- Keep one month’s expenses in your Expense A/c.
- Build a Recurring Deposit that gets you to your defined amount.
- If you are a mutual fund investor, consider parking the amount in Liquid Fund that invests in Govt. Securities.
9/
Should I build an Emergency Fund first or should I invest the money?
Please only start other investments after you have started the process of building an Emergency Fund and have reached at least 75% of the goal amount.
Should I build an Emergency Fund first or should I invest the money?
Please only start other investments after you have started the process of building an Emergency Fund and have reached at least 75% of the goal amount.
10/
Emergency fund is a concept that money kept aside for emergencies
Now this capital should be invested in safe & secure place and not in risky funds.
As you want to use this money when a time of emergency comes and don’t want to risk the capital amount.
Emergency fund is a concept that money kept aside for emergencies
Now this capital should be invested in safe & secure place and not in risky funds.
As you want to use this money when a time of emergency comes and don’t want to risk the capital amount.
11/
Recurring Deposit which is a fund which invests the same amount every month & end of a tenure ( say 1 year ) you get an assured amount.
Alternate to that you can consider liquid funds which is kind of a mutual fund which invests mostly only in Govt. securities.
Recurring Deposit which is a fund which invests the same amount every month & end of a tenure ( say 1 year ) you get an assured amount.
Alternate to that you can consider liquid funds which is kind of a mutual fund which invests mostly only in Govt. securities.
12/
Cash is King only till your Emergency Fund is made.
Cash needs to be only 1 month of saving.
The rest will go into Recurring Deposit or Liquid Funds.
Cash is King only till your Emergency Fund is made.
Cash needs to be only 1 month of saving.
The rest will go into Recurring Deposit or Liquid Funds.
13/
Incase you don’t have an income (students)
Your Emergency Fund =
Average Package your College Alumni gets when they graduate
Hence calculate backwards & try to build at least 3 months of your possible future salary.
This can be saved in a Bank A/c or Recurring Deposit.
Incase you don’t have an income (students)
Your Emergency Fund =
Average Package your College Alumni gets when they graduate
Hence calculate backwards & try to build at least 3 months of your possible future salary.
This can be saved in a Bank A/c or Recurring Deposit.
14/
Why start with Emergency Fund first?
Think of it like building a social foundation which can
- give you sense of comfort that you have prepared for unexpected circumstances.
Why start with Emergency Fund first?
Think of it like building a social foundation which can
- give you sense of comfort that you have prepared for unexpected circumstances.
- protect your future investments as you would then not have to dip into them or pause them in case of emergencies.
- experience building a small fund where you see your first set of secured returns, so you confidently start the rest of your investment journey.
- experience building a small fund where you see your first set of secured returns, so you confidently start the rest of your investment journey.
15/
Why keep Emergency Fund in Secure Investments?
The reason to create an Emergency Fund is that you know the fund money (principal sum) is secure and available when needed.
Why keep Emergency Fund in Secure Investments?
The reason to create an Emergency Fund is that you know the fund money (principal sum) is secure and available when needed.
16/
Why Gold is not an alternative for Emergency Fund anymore?
Gold was considered as an option in the past because it allowed for convenient storage of large values & was given as auspicious gifts so that we can save for a rainy day.
Why Gold is not an alternative for Emergency Fund anymore?
Gold was considered as an option in the past because it allowed for convenient storage of large values & was given as auspicious gifts so that we can save for a rainy day.
Over long periods of time, Gold prices have gone up because of
⬆️ in demand, however risk of price fluctuation exists. Along with the hassles of safe-keeping and the trader’s fee at the point of selling, don’t make it the best option for an Emergency Fund in today’s landscape.
⬆️ in demand, however risk of price fluctuation exists. Along with the hassles of safe-keeping and the trader’s fee at the point of selling, don’t make it the best option for an Emergency Fund in today’s landscape.
Given that financial options have evolved, we have more immediate and safe options such as Recurring Deposits & Liquid Funds in the Mutual Fund category, where growth is nominal (3-5%) but assured. And so is the principal sum.
17/
If you have gotten this far, appreciate your time to read about Emergency Funds.
I’ll be posting more such threads
Stay tuned 🔔
/
End
If you have gotten this far, appreciate your time to read about Emergency Funds.
I’ll be posting more such threads
Stay tuned 🔔
/
End
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