Importance of Emergency Funds – Khasnis Prime Wealth

 

To avoid a midlife financial crisis you should be planning your finances very well but for a person who never planned his finances till date, it becomes difficult to choose and plan for a new car, new house, child’s education, and child’s marriage so many financial goals are actually in front of him and he then gets confused as to how he is going to prioritize the goals all priorities can be postponed but there is one priority which cannot be postponed in your personal financial planning and that is nothing but the creation of an emergency fund that should be the topmost priority of your personal finance.

What are Emergency Funds and their importance?

An emergency fund is a sum of money that’s set aside for an unexpected expense, such as unexpected expenditure, medical conditions, or a loss of income. An emergency fund is important to help weather the financial impact of unforeseen expenses. When setting up your emergency fund, there are three aspects to determine, how much to save and how to reach your savings goal, and where to keep the fund.

Building up an emergency fund should be considered as one of your first savings and investing goals.
While the main goal of investing is to earn money to be used at a later date, the goal of an emergency fund is to protect yourself in the present.

Ideally, an emergency fund should have enough money to cover at least six months of your household expenses, or longer if you decide. Your goal should be to maintain your standard of living without dipping into your investments, which could potentially impact your investment goals.

How to start saving up for an Emergency Fund?

To start, you can make a list of all of your monthly expenses, for food and medical treatment, rent, monthly installments of loans, college fees, basic repairs and maintenance, insurance premiums, and something that you simply feel is indispensable. When you’ve created your list of expenses, simply total the amount and multiply it by six, or how many months you want it to last. This number is the savings goal of your Emergency fund. While it may take time to reach this goal, don’t be put off by the effort required.

Where can I park my funds to ensure that my emergency funds are safe? The total amount can be split up into two parts. The first part can be actually parked in your savings bank account. The biggest advantage is that you can withdraw money whenever you need but the biggest disadvantage is that you are going to get fewer returns compared to liquid mutual funds. The other part of the amount can be invested in a liquid mutual fund. The advantage of a liquid mutual fund is that it gives you a better return somewhere around 4-6%. Also, it provides liquidity you can withdraw funds on almost the same day, or in some mutual funds it will be T+1.

If you haven’t yet established an Emergency fund, consider doing so today. At Khasnis Prime Wealth, we leverage our expertise to research, analyze and understand what is best for our clients. We help you to choose the right mutual fund that makes your wealth creation journey a fruitful one.