Life is full of roller coaster rides. Sometimes good things or sometimes bad things will happen to you. Therefore, it is very important to be prepared in advance. For this, it is important to build a strong emergency fund, which will help you handle finances in difficult times. This fund will not only save you from financial crisis but will also keep you away from the situation of taking loans.
Everyone’s financial situation is different, so the size of an emergency fund depends on your lifestyle, the dependence of family members, and sources of income. Generally, financial experts recommend keeping an amount equal to 6 to 9 months of expenses in a fund. This period may also change according to the stability of your job and income.
How do I prepare an emergency fund?
The purpose of the emergency fund is to give you financial security, and here are some simple tips for it.
Set clear goals. First, decide what your monthly expenses are and how much money you have to keep in the emergency fund. Decide the amount according to the expenses of 6 to 9 months and deposit it gradually.
Keep an eye on monthly expenses. Make a list of expenses and cut down on unnecessary expenses. After this, put the remaining money in the emergency fund.
Auto-transfer facility: Set up automatic transfers to transfer a fixed amount from a savings account every month directly to an emergency fund. This will save regularly.
Investment in liquid funds and mutual funds: You can invest the emergency fund in liquid funds so that it can be easily withdrawn at the time of need. Debt mutual funds can also be a good option.
Some helpful financial tips for you
Cut down on unnecessary expenses. Do not spend on unnecessary things, such as going out to eat out frequently or shopping unnecessarily.
Use the money received suddenly. Add the extra money received through bonuses, tax refunds, or any other means to the emergency fund.
Avoid debt. Avoid debts like credit cards and personal loans, and if you have taken a loan, repay it as soon as possible so that your financial situation remains better.
Review regularly. Review your funds regularly and tweak them as per your needs.
Stay alert before investing in mutual funds
Keep in mind that mutual fund investments are associated with risk. Read the relevant documents carefully before making any investment, and be sure to consult a financial advisor.