There’s a reason why everyone, regardless of income, is advised to build an emergency fund. Some experts say a three to six months worth of expenses are good to cover you. Some say it has to be robust enough to cover for twelve months; but if you have just started paying attention to savings, even three month’s worth is a lot of money.
To make the journey a bit easier and less scary, start slow. Here are few simple ways to help you build and manage your emergency fund:
1) Isolate your savings
You cannot spend the money you don’t have, and this is a simple mind trick you can use. Whether automated or manual, move your savings from your salary account into another account from where all your savings and investments can be managed or just move it to a liquid mutual fund which can generate higher interest than your bank account.
2) Cut non essential expenses
Categorize all your non-essential expenses, look at all major expenses and find one that you can potentially cut. It might be your conveyance, dining out, grocery bills or shopping but if it trims several thousand rupees off your monthly expenses, it’s worth the effort. A very simple and effective hack is where you can save your extra expenditure on the fuel is by car pooling or by using public transports for your daily commutes. This will help you slash down your fuel and vehicle maintenance costs effectively.
3) Carry a shopping list
Sit down to make a shopping list. Make this list comprehensive enough to include everything you need, then stick to it! There’s no point in planning your shopping if you’re going to add impulse items to your shopping bag when you get to the store.
4) Sell your unused stuff
If you have computer equipment, musical instruments, furniture or that treadmill you’ve never used or never going to use again, sell it!. You can usually find a buyer through many avenues available online and offline. Save that extra cash for your emergency fund.
5) Quit your vices
We are not here to knock on your vices. We all have them. But many of us also make the mistake of not realizing just how much those vices actually cost us. Those packs of cigarettes, cups of chai and pints of beer can really add up, and fast. Calculating the actual cost of your vices over the course of a month (or more) will help you put your habits into perspective.
Now that you can save for emergency fund, putting them in a savings account would be a sound approach traditionally. But with the falling interest rates and rising inflation, your bank account doesn’t cover we recommend using other avenues that will get you more interest than your savings account (6-7% annual returns). There are a lot of good liquid mutual funds available to put your extra funds into. Liquid funds are debt mutual funds that invest your money in very short-term market instruments such as treasury bills and government securities and hence are less riskier compared to other mutual funds. You can withdraw your money anytime and the money reaches your bank account instantly or within 1 day, depending on the fund.
MoneyUp is a smart financial app that helps you manage your investments and build your emergency funds as well. Try the MoneyUp app now: