A Plan For Dealing With Unplanned Expenses
We invest to meet our goals and aspirations. It is important to nurture and protect these investments from disruptive emergencies. Find out how
We save and invest to secure our future. But we may be overlooking the one thing that can undo all these efforts: an emergency. Think of the times when you had to use your already overdrawn credit card to meet a medical emergency or when you had to sell, maybe even at a loss, the investments you had been building for long to pay that equated monthly instalment (EMI) and the effect it had on your finances and goals. The way to protect your financial security is to ensure that you are in a position to meet your essential expenses and emergencies without disturbing investments and savings earmarked for future needs, even if your regular income stops or reduces for any reason. You do it by building an emergency fund.
Why an emergency fund?
Your income is earmarked to meet your regular financial obligations. This includes the living expenses, repayment of loans and planned savings and investments. Your savings and investments are spoken for to meet your goals. You would have invested in long-term investments and there may be a penalty or loss of value if they are withdrawn earlier. A loss of job, a cut in income, an unforeseen expense—are all situations that call for access to funds that can help you tide over the shortage of income.
You cannot forecast emergencies and unplanned expenses, but you can estimate what you need to take care of your regular expenses, including loan repayments. Ideally, you should prepare to set aside funds to cover at least 3 to 6 months of expenses.
Use with discretion
The emergency fund is not for you to spend as you please. It is for use in an emergency or to meet essential expenses. If you use the fund at any time make sure you replenish it as soon as possible. As your income and expenses go up, your emergency fund requirement will also change and you will have to top the fund periodically. The emergency fund is your primary protection against vagaries of your income. Use it with discipline so that it serves the purpose of giving you financial security.
Source: LiveMint
We save and invest to secure our future. But we may be overlooking the one thing that can undo all these efforts: an emergency. Think of the times when you had to use your already overdrawn credit card to meet a medical emergency or when you had to sell, maybe even at a loss, the investments you had been building for long to pay that equated monthly instalment (EMI) and the effect it had on your finances and goals. The way to protect your financial security is to ensure that you are in a position to meet your essential expenses and emergencies without disturbing investments and savings earmarked for future needs, even if your regular income stops or reduces for any reason. You do it by building an emergency fund.
Why an emergency fund?
Your income is earmarked to meet your regular financial obligations. This includes the living expenses, repayment of loans and planned savings and investments. Your savings and investments are spoken for to meet your goals. You would have invested in long-term investments and there may be a penalty or loss of value if they are withdrawn earlier. A loss of job, a cut in income, an unforeseen expense—are all situations that call for access to funds that can help you tide over the shortage of income.
You cannot forecast emergencies and unplanned expenses, but you can estimate what you need to take care of your regular expenses, including loan repayments. Ideally, you should prepare to set aside funds to cover at least 3 to 6 months of expenses.
Use with discretion
The emergency fund is not for you to spend as you please. It is for use in an emergency or to meet essential expenses. If you use the fund at any time make sure you replenish it as soon as possible. As your income and expenses go up, your emergency fund requirement will also change and you will have to top the fund periodically. The emergency fund is your primary protection against vagaries of your income. Use it with discipline so that it serves the purpose of giving you financial security.
Source: LiveMint