Life is never smooth sailing. There are many concerns that regularly crop up, and there are some that require contingency planning. It is not always easy to plan an emergency fund when expenses are high, but you can expect to save small amounts that can fund you in an emergency. The other option is to take an emergency personal loan and repay the same in small installments.
The new generation is aspirational, and saving is not a strong point. But, opting for personal loan for medical emergency can tide you over any emergency situations like job loss, or other calamities that you have not foreseen. It is not entirely safe to live from paycheck to paycheck. You must take measures to ensure that you have an emergency fund that will support you in bad times. It is advised that you keep at least six months of income as a contingency fund.
How To Save Money?
The first mantra to save for an emergency fund is first to put away the money you have designated as savings from your income than plan expenses.
Income- Savings For Emergency Fund Expenses
It should never be the other way round, or you will save nothing. Follow these simple tips to save for emergencies:
- Make a budget. This is very important as it gives you a sense of essential expenses and you can plan accordingly. Once the budget is made, stick to it. Calculate how much you need for rent, debt repayments, food and necessities, fuel and electricity, children’s education needs, medicines, and sundries. Keep a small amount aside for entertainment. You can fine-tune your budget if you study your expense patterns over the last few months. You will get a rough idea where your expenses can be cut back, and you can save more.
- You can now start looking for things you can cut back on painlessly. Like you could save on electricity bills by switching off lights. The food bill could be pared by eating home most nights and buying seasonal fresh fruits and vegetables. Do you really need that branded hoodie, or could you manage with a less expensive one? Could you take the subway instead of the cab? Small things can also add up to a large amount.
- Be vigilant about your debt repayment. Once you have cut impulse buying, your credit card bills could come down. Check personal loan interest rates and see if you can do a balance transfer to a lower interest repayment. Most financial institutions offer a lower rate of interest on personal loans if you transfer debt, as they gain a customer base which is already verified. It is a good idea to be on top of your debt repayment to encourage savings. The faster you repay debts, the lower the interest you pay, and the more you save. The smaller the EMI’s the more money you have to spare.
- We tend to buy stuff that we don’t need. It is a good idea to declutter and earn a little money on the side. The internet has made it easy to sell things you don’t need. You can achieve the dual purpose of making your home clutter-free and adding to your emergency kitty.
- Try augmenting your income by doing a part-time job like teaching tuitions or doing a remote data entry job or anything that interests you and can add to your savings. You could also look at a hobby that can make you some money, like selling craft items online or similar.
How To Keep The Emergency Savings Separate?
It is wise to keep your emergency funds in a different account that is not easily accessible. The more difficult it is to access the kitty, the less tempted you will be to encash it whenever you feel that you need money.
Try and put your savings in a savings account or liquid mutual funds. This will allow you to earn some interest and also keep your capital safe. It takes time to create a nest egg, and you need to have discipline and consistency to keep adding to it until it reaches the target. Try and automate your savings like create a systematic investment plan that is cleared from your bank or NBFC account at the beginning of the month so that you are bound to save. Do keep in mind that as you grow in life, your emergency funds should also increase. Hence it is advisable to check and compare personal loan interest rates in india to get the best deal.
If you are single, you need less. You need more as your family grows, and bills rise along with it. The aim is to keep a six-month buffer as an emergency fund at all times.
You can invest this money in instruments that keep your capital safe and can be redeemed in a day or so. The emergency will require you to get funds fast. So although you should keep it separate from your regular savings account, it should still be accessible when you need it.