The Importance of an Emergency Fund in COVID19 Era-Part 2

Mayur Pirgal & Kanchan Dwivedi

Have you been blowing away all your earnings every month, believing that you just cannot save anything?

Well, in that case, it will help you to know about Emergency Fund, the sum of money that you save, to take you through rough times.

Given that it is amply clear today, after COVID19, that people may face unexpected situations like a job loss, salary loss, or salary cut, that might affect their health, business and life, we at LoanGini wanted to talk about always having an Emergency Fund that you can dip into in times like this.

Last week, we covered the topics including What is an Emergency Fund?, Why should you save for an Emergency Fund?, How much money should you allocate for an Emergency Fund ? in Part 1 of our Two- Part article, The Importance of an Emergency Fund in COVID19 Era-Part 1

In Part 2 of Emergency Fund Series, we share about How to Build an Emergency Fund? Tips for Investing in a Emergency Fund & Redemption of an Emergency Fund?

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1. Building an Emergency Fund

In building an Emergency Fund, the suggestion for you is to follow the steps shared below:

  • Saving every Month- Once you have identified the amount that you would like to have in the Emergency Fund. Then, work towards putting aside a regular sum every month, from your salary. It is advisable to put aside 5-10% of your income towards the Emergency Fund. The idea is to build the fund gradually over time as putting aside a big sum of money may pinch. For e.g, you have decided to save Rs. 1,80,000/- as an Emergency Fund, since your expenses for the month on an average are Rs. 30,000/- ( this expense should be including the EMIs/ loan instalment every month). In this case, it would not be possible to put this big amount aside immediately, and one would have to set aside a small amount every month (similar to an EMI).

  • Open a Separate Account for the Emergency Fund. This would also ensure that you don't withdraw money from this account, except when it is an emergency.

  • Set up Auto Debit- Set up an auto-debit of a comfortable sum from your salary account that is directed toward