I have just started working. My seniors suggested that I should start creating an emergency fund. Could you tell me what it means?
I like to think of it as a personal financial safety net. It is the money you keep aside to handle sudden surprises that life throws at you.
Think of it as your ‘just in case’ fund. You do not touch it for shopping, vacations or routine bills. It is there for actual emergencies only.
These emergencies can include unexpected events such as:
- Job Loss
- Medical Expense
- Home or Car Repairs
In fact, any unplanned expense that is not part of your usual monthly budget counts as an emergency.
An important thing you must remember about an emergency fund is that it should be easy to access whenever needed. I prefer keeping it in my savings account for quick withdrawals.
Ensure that the size of this fund covers at least 3-6 months of living expenses. The larger the amount you have, the better the breathing space during tough times.
So, how will you build this fund? This is what I do:
- Save a small and fixed amount every month.
- Transfer it to my savings account as soon as I get my salary.
- Add bonuses, tax refunds or extra income to grow it faster.
For me, an emergency fund is not just about saving money. It is about peace of mind. It keeps me financially steady, even when life throws me curveballs.