In India, the job market has lots of ups and downs. It’s the most volatile market. The financial status of Indians is not completely stable. Many sectors suffer the consequences of the fluctuations. It becomes unpredictable for a promising future for the next generation. Emergency funds provide a safety net to such situations. Situations arise with unfortunate, unexpected events like job layoffs, medical emergencies, natural calamity, home and car repairs, etc. Any extra funds would save the day. Emergency funds are prone to being very useful during tough times.
Why Do I Need an Emergency Fund in India?
Healthcare, tuition fees, and job securities are too low in India, compared to other nations. It’s crucial to maintain an emergency fund to cover any unexpected expenses without breaking up all your savings and withdrawing all your investments/bonds. These times can make your debts more visible. Challenging times like these need emergency funds.
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Did You Know?
Salaried individuals with stable income can get faster emergency funds schemes and plans. Better to opt for a lesser interest rate emergency fund scheme early.
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How Much Do I Need in My Emergency Fund?
Calculate the monthly expense of the household. 5 to 6 times of that amount should always be saved as an emergency fund. Never break that account or use that fund for other expenses. The emergency fund sums up to 3 to 6 months of your current household expenses.
Estimation and Breakdown:
- Single Earning Individual: If you’ve no responsibility and you live on your own. If your monthly expenses are ₹30,000, aim for ₹90,000 – ₹1,80,000 in your emergency fund.
- Family of Four (2 adults and 2 children) : If the family’s monthly expenses are of ₹60,000, a ₹1,80,000 – ₹3,60,000 emergency fund would be ideal.
Always be ahead of the expense. Emergencies have no specific date to come. Keep medical insurance ready.
Where Should I Keep My Emergency Fund in India?
- Savings Account: Choose a high interest paying banking institution and make a standard plan for your emergency fund in the savings account.
- Liquid Funds: Low-risk mutual funds offer slightly higher returns than savings accounts.
When Should I Use My Emergency Fund?
Genuine medical emergency should be allocated these funds, such as:
Medical emergencies, sudden layoffs, Home repairs, and car repairs may require emergency funds.
| Emergency Situation | Description |
| Medical Emergencies | Unexpected medical bills for yourself or family members. |
| Sudden Job Loss | Cover your essential expenses while searching for a new job. |
| Home Repairs | Urgent repairs to your house that can’t be delayed (e.g., roof leak, plumbing issue). |
| Car Repairs | Unexpected car breakdowns that require immediate attention (e.g., engine failure, flat tire). |
Read also: How to Create a Personal Budget: A Step-by-Step Guide
Building Financial Security, One Step at a Time
Many Indians fail to identify emergencies and funds required to face those crucial situations. Make a list of unexpected situations that may arise in the future. Based on your family situations, dependents, and job market, you should be ready with some funds in your bank to face such tough situations. Have at least 5-6 months of extra funds for emergencies. Make wise decisions and save money accordingly.