By Yeldi on April 19, 2017
Are you prepared for Emergencies?
Life has a funny way of hitting us when we least expect it. It is exactly when we have wedding expenses, the refrigerator decides to conk out. It is when we are back from a luxurious trip, the car battery dies and needs replacement. Sometimes the issues might be more critical like hospital bills or losing a job. Over and above with commitments like credit card bills, personal loans and other large expenses, an Emergency fund is of utmost importance to avoid going into debt by paying for these necessities. While some of us have been schooled into creating a savings account and saving for tax planning and retirement, how many of us plan for emergencies?
So let’s start with how much one sets aside for this fund? Actually there is no hard and fast rule. It all depends on your earning capacity, the lifestyle you are used to as well as how much insurance you have. As a thumb rule it is good to keep aside about 3 to 6 months worth of expense money. You will need to calculate how much money you will need month to month to pay your bills, petrol, rent if any, daily groceries and vegetables. Do not forget to add any EMIs or loans you are currently paying as well as insurance amounts. The final figure you arrive at is what you and your family will need to tide over any medical emergencies and/or a loss of job until you find a new one.
But what if you have home loans or personal loans that you are paying back? Then, is it better to prioritise paying debts than save money for an emergency? Opinion is divided on this as some people feel it is better to pay and close your debts quickly rather than incur additional interest. They advice that if you have high interest-rate debts that is not tax deductible, you should pay it off before saving. If the interest you pay is higher than the interest you earn, you are losing money. While another section of people feel that it is always better to save something so that in an emergency you do not have to depend on credit cards and loans which will push you into further debt and it becomes a revolving door. On the whole it is a delicate balancing game where one pays off monthly debts as well as keeps something aside for emergencies.
So, where does one keep the emergency fund? Since this needs to be accessed urgently in a crisis situation, it should be in a place that is readily accessible, without too much paper work and running around. It is easiest to have it in a savings bank account which is not mixed with your regular salary or savings, so that the temptation to dip into it is minimised. To make the whole process of avoiding mixing of monies, one can have a regular salary account, a separate savings account as well a digital wallet account like Yeldi Folks Tap and Pay prepaid card where one can load money and keep track of all the monthly transactions. In fact the hassle of opening another bank account is completely bypassed as a Yeldi Folks card does not need a bank account to transact with.
Wanting a new pair of shoes for your sister’s party or the latest i-pad that's come into the market does not constitute an emergency. Using this money to pay off your credit cards also does not count. This fund needs to be touched only for anything medical or a major unplanned household repair or if there are safety concerns for your vehicles etc. And once this fund is dipped into, every effort should be made to replenish it as soon as possible.
You can help increase the amount in the fund by depositing your annual bonuses, any tax refunds, any gift money you receive for birthdays and anniversaries, any earnings from a 2nd hobby job etc.
It doesn’t matter if you start small, but just start!
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