Financial stability is among the most vital things needed in life, however, the majority of people usually ignore it until a disaster occurs. A survey conducted lately has unveiled a staggering figure – 78% of Indians lack an emergency fund. It indicates that a majority of families, in such situations with unexpected expenses like medical costs, layoffs, and urgent house repairs, will have to take loans or use their long-term savings to cover the expenses, and in most cases, at high rates of interest.

An emergency fund is not only about putting money aside; it is financial readiness and lessening of one’s tension when life delivers unexpected gifts to you. If you still don’t have one, it’s the best time to start creating it.

Why an Emergency Fund is Crucial

Life can be so unpredictable. The time of an emergency is always unknown and hence having a separate fund is very important otherwise you might be in debt or forced to sell your things to get cash.

Reasons why an emergency fund is required:

• It takes care of unexpected expenses such as medical emergencies, car repairs, or sudden unemployment.
• Avoids getting into debt since the need for high-interest loans or credit cards will be eliminated.
• Makes one feel relaxed and happy that there is financial security in the form of savings.
• Allows for long-term financial plans to continue as it acts as a shield against the need for early withdrawals from investments.

CA Gaurav Kumar, a financial expert, points out that an emergency fund is like a cushion that separates you from financial troubles, thus enabling you to manage the situation with composure and prudence.

How Much Should You Save?

The right emergency fund amount varies based on your earnings, spending, and way of life. Usually, it is recommended to save from 3 to 6 months of the costs of living.

Let’s say your monthly expenses amount to ₹40,000, then the emergency fund you should have is between ₹1.2 and ₹2.4 lakhs.

If you are someone with an unstable income or have dependents, it would be even better to have a larger fund that could cover up to 12 months of expenses.

Steps to Build Your Emergency Fund

Building an emergency fund need not be a stressful task. This step-by-step guide is exactly what you need to make a start:

1. Evaluate Your Monthly Expenditure: Work out the money needed to cover essential items: rent, groceries, utilities, loan EMIs, and insurance premiums. You will then be able to determine a practical saving goal.
2. Have a Small Beginning but Be Regular: To save a large amount, if you find it difficult then you can start with a smaller target like ₹5,000 or ₹10,000 and raise the contributions as your salary increases.
3. Take out a New Account: Your emergency fund can be a money market fund or savings account that is separate from the regular one. This stops you from using it unintentionally.
4. Organize Your Savings: Arrange for an automatic deduction from your salary account to your emergency fund every month. What this does is that it installs a saving habit and you are less likely to give in to the temptation of skipping.
5. Don’t Risk Your Fund: The money in your emergency fund should be secure and should be accessible. Never put it in stocks or other volatile instruments. Follow the path of minimal risk such as highly liquid mutual funds, fixed deposits or high-interest savings accounts.

Common Mistakes to Avoid

One of the reasons why many people do not manage to have a financial emergency fund is that they commit these mistakes:

• They treat the fund as an additional spending money.
• They use it for their non-emergency needs such as going on a vacation or buying new clothes or gadgets.
• They invest it in volatile securities that are prone to lose value if the market fluctuates.
• They do not refuel the fund after taking money out for an emergency.

Do not fall into these traps that can weaken your safety net and make it less dependable.

The Bigger Picture

An emergency fund is one of the pillars supporting a person’s financial security. Lack of this fund makes the smallest unexpected events able to knock down your financial goals and cause you to find yourself in a loop of borrowing.

Job changes, investments, or big steps in life – having the confidence for all these comes to you not only as a result of securing your future by setting aside part of your income but also as a result of making smart decisions with the rest of your money.

Conclusion

A staggering 78% of Indians do not have an emergency fund, thus the time for action is really now. It would be wiser to start small, be consistent, and make financial preparedness your priority.

A safety net for the unexpected enables a person to have a sense of security and be financially independent, in essence, making the tackling of life’s hurdles without worries and borrowing possible.

Don’t forget, the ideal moment to commence the creation of your fund was the day before — the second-best time is now.