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How to Efficiently Build an Emergency Fund for Crisis

With the recent economic crisis due to the pandemic, we all have understood that nothing is certain and it is very important to do proper financial planning for salaried employee. A financial cushion is something we all need to fall back on in times of emergency. So, if you do not already have an emergency fund, it is time to build one.

An emergency fund is a contingency fund that you can use in times of health or financial crisis. It simply helps you get through the tough times without having to seek outside help.

What kind of situation do you require emergency funds?

Here are some examples of how emergency savings can be helpful:

  • Pay cut due to the pandemic
  • Layoff or job loss
  • an auto collision or major car repair
  • You have started a new job which requires you to move
  • significant home costs like the cost of a leaky pipe or property damage caused by natural disasters, etc.
  • bill that is not paid or unexpectedly incurred.
  • Medical expenses unexpectedly incurred that are not covered or paid under the insurance health plan
  • A death in the family will require you to pay funeral expenses as well as other expenses related to the funeral and other costs associated with

In this article, we explore how to use your savings wisely and build an emergency fund efficiently. Read on.

How to Efficiently Build an Emergency Fund for Crisis?

  1. Define Your Requirements.

Based on the expense patterns in your home and the medical history of the family members, create an estimate of how much you may need in the case of an emergency. You may also take into account events such as job loss. For example, you can calculate how much you must save to cover the expenses of 12 months, depending on how many earning members are there in the family.

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A clearly stated requirement will help you follow a goal, which will keep you motivated to save.

  1. Set a Monthly Goal.

You cannot probably build an emergency fund in time if you are not consistent. No matter what your income is, you should be able to save a fixed amount every month. For that,

  • Start budgeting your expenses.
  • Avoid leisure and unnecessary spending.
  • Do not take money from the emergency fund.
  1. Save Extra Income.

If you have an extra source of income, make sure the money you earn goes straight to your emergency fund. The whole idea behind saving for an emergency is to avoid spending unnecessarily so that you can spend when it is necessary. So, make sure that you use your extra income to expand your emergency fund.

Also,you should try to add gift money or envelopes on birthdays and anniversaries to your savings.These little receivables can add real value to your liquid fund.

  1. Invest and Earn From Your Savings.

When you start accumulating an emergency fund, do not leave it in a bank account where it is sitting without any profit. Rather, see if you can find any helpful investment schemes. Since an emergency fund is a liquid fund, look for suitable short term investment plans that you can withdraw from when needed.

You can try out mutual funds, short-term RDs, and chit funds to earn interest on your liquid funds. Make sure to do detailed research to understand how you can manage your money to get better profits.

  1. Diversify Your Investments.

Investing a huge amount in a single investment scheme can have you end up in a loss that could have been avoided. So, try to stow away your money in different investment schemes such as liquid funds, FDs, short-term RDs, SIPs, etc. You can also move money around depending on where you can earn the most profit from. Just keep in mind that the redemption policies of these investment schemes are in your favour, so you can withdraw your money at any instance. Also, make sure that you always have a short-term emergency fund in your savings account.

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It is never too early to start saving money for an emergency fund. So, begin with saving from your monthly income and start expanding it gradually. Make sure to spread your investments and verify schemes for security.

I hope this article helped!

Author bio:

Aatish Khanna works with the Content Marketing team at Money Club – a digital chit fund platform that makes saving, borrowing, and investing your money more efficiently. He writes on topics to help his readers understand processes so they can make better financial decisions. He’s the go-to person that his family, friends, and colleagues turn to for all their money matters. He loves to play board games and aspires to one day build his one finance-related board game and app.

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