Emergencies can strike with no warning. We all know that we should save for emergencies. Are you one of the few people who are always postponing building the emergency fund? If yes, then looking at the current scenario, it is high time to create your emergency fund.
If you recently started earning or haven’t started investing yet, a savings account can be an excellent starting point.
If you have one savings account, you may look at opening another savings account to accumulate your emergency corpus. As we use a savings fund for different purposes, building your emergency corpus in the same account can become confusing. If you just have a one savings account, you don’t have to worry as you can open an online saving account instantly from the comfort of your home. You can instantly start transferring money in the account from your existing savings account through NEFT, IMPS or UPI.
If you have several bank accounts, you can earmark anyone savings account as an emergency fund.
Typically, it is advisable to have at least three to six months of expenses in an emergency fund. You can calculate your expenses by going through the monthly bank statements or a budgeting app that you use. If you still cannot figure out your overall expenses, you can add the monthly recurring payments along with the approximate amount to figure out your expenses.
It can include rent, electricity bill, other utility bills, grocery expenses and other necessary expenditures. Add these expenses for three or six months and you will arrive at your expenses.
E.g. if your monthly expense is Rs.30,000, you might prefer to save more than Rs.90,000 in your emergency fund.
If saving for three months of expenditures seems like a tall order, start with a small amount. Breaking down the corpus into several small goals will keep you motivated to build the corpus.
E.g., if you want to create an emergency fund of over Rs.1 lakh, you can break it down into five parts and make a target of accumulating Rs.20,000 within a pre-defined time span according to your convenience.
Consistency is the key. If you are serious about building an emergency fund, setting a monthly target amount will help you achieve the target amount quickly.
E.g., you can set a monthly target of saving Rs.10,000 per month to build the emergency fund.
To achieve your monthly target, you can set up auto transfer of the amount from your regular savings account to the dedicated savings account for emergency fund or save money by cutting unnecessary expenses.
Setting up auto transfer from your regular savings account or salary account is a smart and the most effective way to build an emergency fund.
All banks give the auto transfer option to its customers through which customers can set up an automatic transfer rule where a specific amount is transferred on a certain date to a particular savings bank account. Net banking users can easily set up the auto transfer option after logging in with their login credentials.
We can all save a ton of money if we cut unnecessary expenses such as eating out, frequent shopping, etc. Given the present circumstances, you may save a lot of money. Transfer the money that you may have saved to the emergency fund.
We understand that life does not go as planned. There might be months where you may not save towards your emergency fund or may have to use the savings, it is important to monitor your journey.
It will help to add more money if you are behind schedule and adjust your monthly contributions accordingly.
Emergency fund is like a backup fund. Just like we have backup plans, having an emergency fund is equally important. If you have always postponed building an emergency fund, now’s time to build one. Use the above-mentioned points to accumulate your emergency corpus in a savings fund.
Tags: savings account, emergency account
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