4 MinsDec 27, 2022
Life is uncertain, and it often throws new challenges at people. COVID-19 is a fresh example that caused health and financial crises for many households. It showed how uncertain life can be and how crucial it is to be financially prepared.
An emergency can hurt the finances of a business or an individual. Dhansukhbhai Shah knew this well. Following his retirement from state service, he built a stationery shop in Surat. From the day he began his career as a state government employee,
Dhansukhbhai was disciplined with his finances. His discipline helped him launch the stationery business without depleting his long-term investments.
The pandemic had impacted Dhansukhbhai's business, like that of many others. But he could thrive because of multiple emergency savings and investments. As a result, he easily supported his family and two employees despite hardships.
Tough times can come without knocking; hence, saving money is vital even during rainy days in one's career. Uncertain and unpleasant events such as job loss, medical emergency, hike in education fees, or unexpected maintenance costs at home can
occur anytime, so, being financially prepared for them is crucial.
One should not wait for an emergency to prompt them to create an emergency fund. As and when possible, one should save a large portion of their income. This can be done by counting the monthly expenses of one's family, excluding the non-essentials,
and then set aside the funds that can cover necessary costs for the next 6 to 12 months.
How to Build Emergency Funds?
Those who have just started building emergency funds can consider opening a new savings account. There are several ways of opening a new savings account. one can visit a bank branch or access the
bank's website or app. Such accounts ensure safety and guarantee easy access to your money.
Once you've accumulated substantial savings, you may want to invest it to increase your emergency fund. Since the fund is meant for emergencies, park it in a scheme where you can liquidate it quickly. For instance, short-term or mid-term fixed deposits are options worth considering. During crises, you can withdraw prematurely from your FD account and transfer the funds to your savings account for easy access.
The benefit of fixed deposits is that you can get a loan or credit card against them while enjoying the fixed and safe returns, making it one of the most reliable ways of building an emergency fund.
[Also Read: 5 Mistakes to Avoid With Your Emergency Fund]
Importance of emergency funds:
1. Emergency debt:
A personal loan or business loan is a life saviour during emergencies. However, a loan needs to be repaid
and the risk of repayment may prevent you from taking one. Planning and starting emergency savings will help you avoid going deep into debt during unstable times.
Preparation is the best response to any challenge. A sufficient amount of emergency funds gives you the confidence and courage to deal with difficult situations.
3. Financial discipline:
Setting aside a portion of your monthly earnings can help discipline you about your finances. As a result, you can eliminate unnecessary expenses and save more money.
The key to financial success begins with making emergency funds a top priority. The time is here to start building your emergency fund. You can use the Axis bank emergency savings planner to create
a savings plan tailored to your specific needs.
Disclaimer: This article has been authored by PersonalFN, a Mumbai-based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.