Emergency Fund

Most people are not aware and not concerned about having the emergency fund in place. Emergency fund is a great concept which will stop people from getting into debt. If debt's are avoided there is no need to worry about paying the interest. When the interest payment is reduced or avoided then the savings increases and that might result in investing to the future needs / retirement. The workflow or the finance flow works this way

Emergency fund need not to be a specific number, people think emergency fund should be something very higher amount. It can be as small as Rs. 50,000 to Rs. 1 Lakh. Imagine if we met with an accident or someone is ill at home or any unavoidable situation comes into our life and we are waiting for the monthly salary or business returns to overcome these emergencies 

This will be more painful than everything. If we have this emergency fund in place, we don't need to wait for anything. I'm not limiting this emergency need only for the medical emergencies, there can be anything like car broke down, urgent kid expenses, any urgent requirement on fixing the home or it can be a temporary job loss. Anything of these can come to anyone's life and we need to be ready for these kind of unavoidable and sudden emergencies

Once we have this emergency fund in place, we can use that and again we need to save this emergency fund after the recovery and be prepared for the surprises that life gives us without any notice. One should never use this emergency fund for buying stuffs because they are available on discount. That is not an emergency

As quick as we save this emergency fund, we are 1 step ahead of the wealth generation process. People also think that they can put their emergency fund in equities as they might grow on time. We should remember that, emergency funds should be available in cash or any other format which can be made liquid easily. Keep the emergency fund in equity can reduce its value if the market goes down. That is definitely not an best way to have our emergency fund. It is always better to have this as liquid cash

Once we have this emergency fund in place, we are 1 step ahead in wealth generation process. This means we are most likely getting prepared to be out of debt even incase of emergencies. This will stop the interest payment and will increase our investment process.

Have a Great Day

B G Nareshkumar