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Wait before you break your RD

Having an emergency fund in place will reduce the chances of breaking your RD.  

Neha is a 27-year manager who works in a bank. She recently shifted to a place near her office. She had to pay a lot of money to the broker, which included rent, brokerage and deposit. As she didn’t have the required amount of money in her savings bank account, she broke her recurring account to fund the expenses. She had been saving the money in the RD to buy a MacBook Pro. After she had paid her broker, she lamented and wanted to know about the ways to prevent it from happening in the future.

Recurring deposit or RD is a great product to fulfill your short term financial goals. It is a simple saving product, especially for individuals who have recently started working. You can put a fixed sum of money every money in an RD and get a fixed rate of interest for the period. Opening an RD is very simple, and you can open it your bank app. The minimum amount needed to open an RD will vary from bank to bank, and if you are not able to save a large portion of your investment, you can start with Rs. 500 every month.

Read: Eyeing the latest gadget? Open an RD

Here are a few of the things that can be done to save your RD and fulfill your financial goals.

Have enough deposit in your savings account

If Neha had enough deposit in her savings account, she would not have to break her recurring deposit. Hence, it is recommended that having enough savings in a savings account is a must to tide over any unforeseen circumstances. Many people, especially the people who have recently joined the workforce, don’t have enough deposit in the bank account by the end of the month. It becomes a situation of living paycheck to paycheck. Moreover, with a single bank account, it is hard to track the expenses. One way to make sure that you have enough balance in your savings account is to have a separate bank account only for emergency purposes and unbudgeted expenses. Neha could have systematically deposited a certain sum of money every month to the other savings account.

Plan for your upcoming expenditures

Planning for forthcoming expenditures would have helped Neha to pay her dues without much stress. In the case of Neha, her decision to shift her place near her office was sudden. Hence, she could not plan it properly. Planning for it would have been the right way to go forward. If you are aware of any such significant expenses, it is better to prepare for it accordingly.

Have an emergency fund

Everyone should have something saved for a rainy day. No one knows when the demand for quick cash will come into the picture. Experts recommend that at least 6 months of expenses should be parked in an emergency fund. Parking money in a liquid fund, a type of debt mutual fund would be of immense help during such circumstances. Liquid funds have the facility of instant redemption where your money is credited to your bank account in less than 10 minutes. If Neha had an emergency fund, she would not have to break her RD.   

Financial goals are essential and breaking an RD that was meant for a purpose for other things may lower your morale and negatively impact your financial habits. Hence, it is crucial to have a backup plan ready so that you are not tempted to break your RD. This will make sure that your goals linked to the RD are fulfilled and boost your savings habit.

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