Emergency funds are the mainstay of strong personal financial plan for future. Learn why you need emergency funds, how much you need and utilize the money meaningfully.
Many have been impacted severely due to the Coronavirus pandemic in 2020. People have experienced reduced pays, job loss or even closed the doors of small business. At this juncture, one should try to save money for survival during crisis. The pandemic of Corona virus has taught many of us, how important it is to have an emergency fund.
Many of us ended up saving a good amount of money during the lockdown, as there were no places to go for holidays and splurge the money. Many of us might be wondering how this money could be utilized meaningfully instead of making random purchases.
What is an Emergency Fund?
With job loss and reduced pays, a lot of people had to dip into their savings to meet their monthly expenses. People who had built the emergency fund during the sunny days were saved during this unforeseen situation.
An emergency fund is money set aside to be equipped for expenses that arise from unexpected, unforeseen medical emergencies, repair or replacement of critical home-appliances, etc. during unanticipated circumstances.
Many experts suggest keeping aside three to six months’ worth expenditures in an emergency fund but some situations necessitate more. To build an emergency fund, we should try to save money by cutting down our discretionary expenses so that we do not have to go into debts for survival. With advancement of digitization, a lot of new opportunities are opening up by which we must look out for some ways to supplement our income. From building an emergency or contingency fund to investing towards a purpose, there are a multiple ways to put this money into meaningful use.
Watch: How to build your Emergency Fund?
No Upper Limit
The truth about investment is that there is no upper limit to how much money you can make. While the pandemic has limited some ways to build or increase your contingency funds, there are ways to increase your money. Learn to conserve your money by identifying your income and expenses and how long will the money currently have saved will last. You must find ways to reduce your expenses and negotiate critical bills and discover ways to build an emergency fund by stopping some ongoing investment and taking a stock of the little money that you normally stash away and eventually forget about it. Take a stock of multiple bank accounts that you hold and close the unwanted accounts and get the balance transferred to your primary account and keep it as an emergency fund.
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Now the money that is saved by avoiding random purchase during the pandemic can be used to create or increase your emergency fund. Many who had an emergency fund might have felt the need for a larger fund during the pandemic. Many have invested time in hobbies and have translated their passion into earning income like learning new skill sets online from educational platforms, making YouTube channels and earn money depending on skill sets, learning new languages on different apps and then teach to earn additional money.
Millennials, Invest in Retirement Corpus
For millennials, retirement is still a far away idea but it always good to plan saving for future early on. It is very important to have a solid investment plan to build a retirement corpus and the fund can be used to strengthen one’s retirement portfolio further.
With access to credit cards and other electronic modes of payment, we often resort to fulfill our short-term goals. From planning a holiday to buying a phone we are comfortable about swiping cards instead of saving money for such a purpose. However, we do not realize is that we end up paying more for such random purchases with interest components added to it. With some extra money saved in hand, we can plan for any trip or a purchase without having to pay extra as EMIs. With the money saved one can also utilize it as an investment for fulfilling long-term plan goals like making a down payment for a house or a car.
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The pandemic has given an awakening call to millennials and a lesson that a lot of people have learnt is that we were fortunate to secure a job. Millions of people across the globe have lost their jobs and had no source of income during the crisis. We can all contribute a little portion of our income to help the less fortunate.
