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  • Writer's pictureRadhika Patel

What is an emergency fund?

This sub-series will explore working towards affirmation: I am secure in the short-term and can take risks while I am young. An emergency fund contains a sufficient amount of money which is easily accessible. It is for unplanned events such as: > loss of job > you want to quit and start your own firm > sudden medical expense for yourself/partner/kid/parent This implies that if my stable, secure, fixed salary suddenly stops tomorrow, I don't need to panic. I can still make rent payments and look for a new job. If a sudden expense comes up, I do not need to borrow from friends/family or the bank. Our journey includes 3 steps: 1. Ascertain value of emergency fund

2. Start investing!

3. Review our journey 1. Ascertain value of emergency fund Emergency Fund = (No. of months) x (Monthly "Needs")

The number of months you choose, will imply the level of security you are planning for: 3 - Bare Minimum 6 - Ideal 12 - You the star!

Now, let's find the Rs value of "Needs". All expenses can be broadly classified into three categories:

  1. Needs These are your non-negotiables - Rent, electricity, phone & Wi-Fi, groceries etc. Sure, you may stop buying avocados if you just lost your job, but you still need to eat.

  2. Wants These are expenses which define your lifestyle. Are you someone who does a daily coffee run to Starbucks? Do you shop for clothes/shoes/make-up regularly?

  3. Investments This is where you are adulting and putting money away for a rainy day.

So, if my monthly "Needs" = Rs30,000 and I want to secure for a minimum of 3 months, my emergency fund value = 30,000 x 3 = Rs 90,000 Use this template to break down your expenses in the above the mentioned categories.




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