What do you mean by Emergency Fund?
Emergency fund is your hard saved cash amount for helping you and your family at the time of emergency i.e. at the time of your bad health, job loss, to replace the emergency items of your household etc. It helps you to concentrate on the problem when it happens with you. If, you do not keep emergency fund then you will think about the options to arrange money i.e. to arrange it from your friend or arrange it from any other way.
Start building your emergency fund by keeping a specific goal (purpose to build the emergency fund) in your mind. You should also define a specific period i.e. Money required for the expenses of 4-7 months. Your saving goal depends on your income and expenses.
Steps to Build Emergency Fund
- Set a target first and that target must not be very high initially: Without making a target you can not become able to fix your monthly saving amount for the emergency fund.
- List your monthly income sources.
- Access your monthly expenses and try to reduce it.
- Note your monthly saving and try to increase it.
- Note the emergency for which you are building the emergency fund.
- Open an account: Keep this account separate from your regular salary and other income account.
- Use online banking to transfer the required money to this special emergency account and it will give you convenience.
- Set automatic money transfer: You should set automatic money transfer to transfer the money from general (Salary attached) account to the account opened for the emergency. As, we all know that our mind changes according to the situation.
- Dividend Saving: If you have the stock of companies and you have received dividend, you could transfer this dividend amount to your emergency fund. As it is not your regular income.
- Bonus Saving: If you have received any bonus then also transfer it in this emergency fund.
- Cut your miscellaneous monthly expenses
- Use bike for the low distance travelling
- Use public transportation to lower the cost
- Use your emergency fund only for emergency purpose.