Importance of Emergency Fund: COVID-19 Reality Strikes
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Emergency Fund is perhaps the most important and the basic step of financial planning yet many investors don’t care about it because they just want to grow their money at high yield so they don’t want their initial money to sit idle or yield nominal returns.
Emergency Fund is your first step to create a secure financial life, this is a sword that protects you and helps you to maintain your lifestyle even if some worst event strikes you.
Events could be personal, professional, or global. As we are currently going through a global event – A crisis caused by the COVID-19 which leads to recessions, job loss, business loss, medical emergencies, etc.
Only one thing can give you peace and relief, that is your emergency fund, Are you having your Emergency Fund?
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Importance of Emergency Fund
It is very important because it protects you from events like,
- Salary Cuts or Income Reduction
- Job Loss or Business Loss
- Unexpected Repairs for Car or Home Sanitization because of COVID-19 & Lockdown.
- Medical Emergencies in the Family
- Other Emergencies In Life
How Much Corpus You Must Have?
To maintain a lifestyle if any of the events occur in your life, you must have at least 6 to 12 months of your monthly expenses as an emergency fund corpus.
This corpus will work like a cushion on which you can fall upon when the worst happens with you – in this case, anything that discourages your growth in financial life is worst for you.
Where to Park this Corpus?
You must consider options that can give you immediate access to this amount when required, it should not take more than 2 working days to put your hand on this money when required in case of emergency.
Ideally it is recommended to keep this corpus amount either in Liquid Funds (Part of Debt Category of Mutual Funds) or into Fixed Deposits.
In the case of deposits you can consider 2 or 3 years deposits and make sure the premature penalties are least.
What Should Be Your Priority?
Emergency Fund Corpus should be your first priority before making any other investment, without emergency fund your investment behavior could be a sin or a reason of regret in your life when reality like COVID-19 strikes us. So, Build Emergency Corpus First!
Hi, I’m Managing Director at Gurpreet Saluja Financial Services where I help my investors to invest in mutual funds and achieve their financial goals. I’m also a Value Investor and here I write about Personal Finance & Investing.
