Khota Paisa

How To Build Your Emergency Fund?

Posted in General by khotapaisa on July 12, 2009

I never had any emergeny fund. In fact, I never had any substancial fund at all. After I  reaslised that I needed an emergency fund, I started looking for ways to buid it.  Here I would try to share some ways to do it.

1. The best way to build an emergency fund is by investing monthly. You can start a SIP in a debt fund or better start a recurring deposit in your bank or post office. I prefer the recurring deposit though.

2. Another way is to consolidate your long-forgotten & spread-out investments and encash them to form your emergency fund. Let’s say you have a matured NSC or KVP lying somewhere or some mutual fund(s)/share(s) which you bought long back and forgot. You maythen  encash/sell all these investments and use the cash towrads your fund.

3. A fast way to build your fund is to use any windfall that you recently had or you are expecting shortly. It could be anything from gift money to company bonus to your long forgotten friend returning you the money he owed you. Since you get it in bulk, you can keep it towards your emergency fund.

Once you have the emergency fund (anywhere from 3 months of your expense to 12 months), you should put it in a safe instrument. Typically, you should put 1 month equivalent in your savings account and the rest in a debt fund, fixed deposit (yes that’s right) or anywhere where you have both safety & liquidity.

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