You should build at least 3-6 months’ monthly expenses corpus as a contingency fund to meet an emergency in life.
We all know that life is quite uncertain and there are many risks attached to it. Being a bread earner of the family, it also adds up the responsibility on the shoulder of an individual who have one or more dependents in his/her family. Any uncertainty in the life of the bread earner or even in the case of dependents simultaneously disturbs the life as well as the finances of the whole family. To avoid such uncertainties in life one needs an emergency fund so that they can meet up those hefty expenses which can emerge in case bread earner loose his/her job or faces any medical emergency like temporary or permanent disability.
An emergency fund also referred as Contingency fund, a financial goal which is usually avoided by a maximum number of people and families. But in reality, this is the most important financial goal of any individual’s life, which every person should start planning even before they think about planning for any other financial goal of life, mainly because of emotions and risk attached to it.
Why should you build an emergency fund?
1. To meet the expenses in case of any uncertainty like Job loss, temporary or permanent disability etc., 2. For peace of mind, 3. For the safety and security of your family
Should I pay my debt or build an emergency fund?
Nowadays almost every individual has some or the other form of debt on his shoulder, whether it is a home loan, car loan, personal loan or it could be heavy credit card bill. But this is also a reality that in the case of any medical emergency the urgency of cash is higher than paying off debts. So it is always better to save the parallel for both the financial goals and if would like to prioritize any one of them, then you must build a corpus for any contingency in life first then think of paying a loan.
When to utilize Emergency Fund?
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Denne historien er fra August 2016-utgaven av Investors India.
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