Considering the surprise lockdowns and severe health problems that followed COVID-19. It is evident that emergencies can strike at any time and without warning. This is the primary reason why individuals have become more aware of the importance of good financial management and the establishment of emergency funds.
Emergency reserves should be built-in life to cover any form of unforeseen mishaps such as car breakdown, job loss, or medical bills, says Indraneel Chatterjee, co-founder of RenewBuy. Depending on one’s financial capabilities, one should set aside a suitable amount as a safety fund for a financial emergency. One can use this safety fund without jeopardizing one’s investing goals. Thus in the post-pandemic era, these funds have become indispensable instruments for people of all ages.
An emergency fund corpus is incredibly important at any stage of life. It should be one of the top financial goals of an individual. But, how much you should put aside for an emergency fund.
How much is sufficient for you?
According to financial advisors, one should build an emergency fund of 6 to 12 months’ worth of living expenditures. At first glance, it may appear that accumulating a huge sum of money is difficult.
Since it is impossible to put together 6-12 months’ worth of living expenses separately, thus experts advise starting small. Start by accumulating 2-3 months’ worth of living expenses, and then progressively increase it.
It’s also worth noting that the corpus is influenced by things like a person’s age, the number of dependents they have, and the type of employment they do. As a result, experts recommend including monthly expenses such as all living expenses, EMIs, rent, and any other fixed expenses you may have when determining the corpus. Once you have this figure, multiply it by the number of months to get the required corpus.