In an earlier article, we have talked about how savings account can be your number one option to build an emergency fund. Click here to read the article.
Opening a new digital savings account to build your emergency fund is easy. Building the required corpus from scratch may take some time. As an emergency fund is essential, it is best to start right away. Postponing it may cost you.
Once you have your brand new savings account and have calculated the amount you need to save, here are a few simple steps that you can do to build your emergency fund.
When you plan to build the emergency fund, the amount of money that you need to save may intimidate you. And, you may think it is next to impossible to do that. Our human minds love to accomplish tasks. Ticking a task off from our to-do list makes us feel good and keeps us motivated.
Divide the total emergency corpus into smaller parts. E.g., it may not be possible for you to build an emergency fund of Rs.1 lakh in a month. Set a target of saving Rs.10,000.
Tackle one part at a time. Once you can complete the first milestone, give yourself a little treat and start with the next. This will encourage you to stay on track and accumulate the final corpus.
2. Set a monthly/weekly target
After you have divided your emergency corpus into smaller parts, you can set up weekly or monthly targets. Earmarking a certain amount of money towards your rainy day fund will make you disciplined. This will remove all the uncertainties associated with saving and help you reach your target quickly.
Let us assume that you need to accumulate Rs.10,000 in the first leg. If you are comfortable saving Rs.1000 per week or Rs.10,000 in a month, you can plan it accordingly.
3.Use auto transfer facility
All banks offer auto transfer facility to their customers. If you use internet banking or mobile banking app, you can easily set up that feature after logging in. Through this facility, you can set up an auto debit function where your bank will automatically transfer a certain amount of money from your primary savings account to the account where you are building your emergency fund.
You can set up the auto transfer facility for your weekly or monthly target amount. Set the date of the auto transfer facility within the first few days of your salary day.
4. Reduce your unnecessary expenses
Due to marketing and advertising activities, we end up buying a lot of products we don’t need. You can easily filter out a lot of unnecessary things and focus on the needs. Save the money and add it to your emergency fund.
5. Use your gift money
If you receive cash as gifts on special sessions, you can save the money to build your emergency fund. You can accumulate the cash and deposit it in your emergency savings account or transfer the total amount from your primary savings to your other savings account. This will make sure you are not using the money that you received as gifts to carry out day-to-day transactions.
Building your emergency corpus is not an impossible task. You can follow these steps to build an emergency fund in a savings account to take care of your emergency expenses.
I want to know what should be the corpus size of my emergency fund. Some experts say it should be equal to 6 months income.But covid19 pendamic has changed the paradigms. So please elaborate on the size of emergency fund corpus.
Thanks for your question. The size of the emergency fund depends mainly on your expenses and not income. Also, the size of the corpus will vary from person to person. Someone with higher financial obligations such as kids and loans may have to save more than someone without any financial obligations. Also, it depends on how you want to build your emergency fund. Do you want to make it a bare-bones fund that will only suffice the basic essentials or do you want to include occasional treats as well?
There is no one answer that will fit all. So, you will need to consider your circumstances and build an emergency fund.