Just like their name, Emergency funds are for emergencies and dilemmas, say the loss of a job or sudden significant expenses. In the perfect language of investment, the nature of such costs is Unusual and Infrequent. You may call them UNPLANNED MANDATORY EXPENDITURE. It may not be the best example, but money kept in Govt securities by industrialists and used in case interest rates are up suddenly is one example. We saw such a situation in some instances in India when after the 2008 crisis, interest rates in India went high; many companies started for bankrupt. It is like a cushion against a difficult situation. A different example may be that emergency funds are their finance to avoid taking debt with high-interest rates.

After my talk with many individuals for study or general, many ignoring this, not keeping it in the right amount.

Image: economic times

Why do you need to keep such a Special Fund?

While studying for this blog post, I realized that many US citizens live paycheck to paycheck. Why in the US, Maybe the situation is the same in India. In such a situation, one extra expense may make or break you. We all know that there is always a possibility for sudden change, the sudden need for money. It could be anything. from as small as car expenditure to as large as accident and operation. Yes, there is always insurance, but I saw that sometimes it is not covered. Or maybe you ignored it like Dengue. Not many Insurance companies sell cover for it in India. So?

Sometimes, you can not sell your investment or use funds from retirement. It also needs easy access. in such cases, earning a return on such funds is not the primary goal. Keeping money easily accessible is essential. How big or large is the size? Between three to six months’ worth of living expenses is the ideal size for emergency funds.

Where to keep it?

At least in India, some funds like Reliance money management can give you money in your bank account in less than five minutes. Then, you can withdraw it from your Bank account. A particular Savings bank account kept aside for this is very good for an emergency fund.

How to raise money for this? Financial experts generally recommend putting away 20% of each paycheck every month. In my personal view, 15% is also correct. Some experts recommend a second job, selling things you don’t need in your house—garage sale. Though I am not from the US, I love the concept. They can take care of many problems. Amazon is also keeping a similar facility, if I am not wrong. OK. I recently listened to eBay also.

Checking accounts in the US may be the right option. In India, payment banks like PayTM and Airtel Payment bank are the right option. Money market funds having good liquidity are also one.

Stop eating out or try to minimize spending without a plan. I don’t need to explain it.

I am going to end this chapter with some Myths about it.

Put as much money as possible in emergency funds. No. No need for that. The amount equivalent to a six-month expenditure is sufficient. But which six months?

Future six months. Suppose you are planning to buy a car or some vehicle or are getting married. How can you expect that your expenditure will be the same? It’s your responsibility to take care of it.

Don’t include your expenditure on luxuries like Eating out or shopping. Utility bills, fuel Expenditure so that in case you lose your job, forgetting another you need to spend. An emergency fund will take care of it.

Putting Emergency funds in investments. Good idea. But say you are hospitalized and need an operation immediately. How much time will it take to sell your assets? The market crash may affect your emergency funds. Then?

Using retirement funds for emergency funds. I will call it financial suicide. Why use the funds which you are making for your retirement. Do you know what type of difficult situation in the future is waiting for you?

Avoid using Emergency funds. Once again. Suicide. emergency funds are there for use and refile. Please don’t play with them and don’t do any experiments with them.