Thursday, May 5, 2022

 Start that Emergency Fund...make a beginning!

One of the most famous adages about savings goes, ‘A penny saved is a penny earned’.

While emphasizing the importance of saving, what this saying means is that setting aside money from your existing funds is as good as earning it.

There are several reasons why one needs to save. Its merits include -- being prepared for emergencies, fulfilling your financial and material goals, and eventually building wealth over the long term.

Financial goals would typically include, but not be limited to, buying a house, securing funds for children’s education and marriage, funds for retirement, a dream car, vacations and adequate health care etc.

While saving is the primary step to all of these, one also needs to define their goals, how much money each of these goals would require, choose the relevant instruments and allocate funds accordingly.

Goals could be short-term or long-term in nature, but foremost is that one needs to build and maintain an emergency corpus.

What exactly is this corpus, and how does one work towards it?

As its name suggests, an emergency corpus is meant to come in handy in emergencies and should be strictly kept separate from regular savings or funds earmarked for specific goals.

These funds could ideally be about three-six months of your living expenses and can be invested or kept in an instrument where it is easily accessible. For instance, many investors prefer  these funds to be parked in a liquid fund or a savings account.

An unexpected medical expense is something you could dip into your emergency funds for. A loss of a job or any other unforeseen crisis is also something for which your emergency corpus could come in handy.

The need for money is inevitable for tackling these situations at most times, and not having the funds at that time may lead to one borrowing the funds at unfavorable rates, which is another burden to deal with.