First step for Financial independence : Emergency Corpus

Dear Friend,

Congratulations on your first job. Now, You are earning decent amount of money to live a lavish life and splurge as per your wish. This is one of the best phases of life. Enjoy it without any doubt.
Now, comes the first step that you are looking to take to move from a carefree spender to a wise saving guy.
I would suggest creating an "Emergency fund".
What is Emergency in real life? (God forbid any of these happen with anyone) It can be a Medical illness, Job termination, Vehicle repair, House repair, or any unforeseen circumstances which need urgent attention.

Emergency fund is the sum of amount that you need to live with your normal expenses for 3 to 6 months.

Image courtesy: Google

I am providing you one example to make it clear. Suppose a guy , Gaurav, joins a company with a starting salary of Rs. 30,000/- per month. The basic expenses of Gaurav for a month is Rs. 20,000/- . This includes House rent, Grocery expenses, Fuel expenses, General day to day expenses, etc.  Rs. 20.000 is the minimum amount that Gaurav need to live.
So, his Emergency fund should be his 3 to 6 months of expenses (based on his liking and preferences).
The Emergency fund amount ideal for Gaurav = 20000*3 = 60000/- and 20000*6 = 1,20,000/-
Now, you have a target amount in front of you. Next task should be "Accumulation of Emergency fund".
How, you are going to save money for Emergency fund. Since, we need to save this money as soon as possible and without any risk; we should opt for the saving options with least risk.

The best such instrument is "Recurring deposit". You need to instruct your bank to deduct a fixed amount from your savings account and deposit it in your Recurring deposit account every month on a fixed date. This type of forced saving will help you to reach your target amount quickly and safely. Recurring deposit are earning an interest in range of 4.5% to 7.5% which is an added benefit. Boom, after 6-12 months you have saved the desired amount.
Image courtesy: Google

Next comes " Where to keep Emergency fund". You need some options to keep this amount so that you can actually use in case of any emergency. 
Best options are:
 1.  Keep the money in a Savings account with Debit card facility. You can withdraw this amount without any hassle. Your money is only as far as an ATM kiosk from your location.
2.  If you have saved the amount for 6 months of your expenses, you can keep half of the amount in Savings account and rest half as a Fixed deposit in an account with Online banking facility. In case of emergency you can break the Fixed deposit online and get the money within 24 hours.

Bonus Tip: Keep a Credit card , but use it wisely. Credit card can help you when you need money urgently. But use it only when you need some time to arrange money that you have saved already. If you overuse Credit card then you are calling for a big trouble.
This concludes my first post. Hope you got a clear idea what is Emergency fund and why it is so important in our life.

Special note for my readers:
This is my first post on this blog. Hope you loved it and gathered some useful information. In case you have any query/ suggestion/ comment/ compliment/ complaint feel free to contact me.


Your Friend,

Kumar Gaurav

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