Even the best of the runners can’t run away from emergencies.

6:05 pm

Dear dreamer,
We hope you all are keeping well and finding these chapters insightful. Along with this, we truly believe that you all have checked on your bills, expenses, investments, and other things we have talked about. Now, amidst everything, how can a financial plan be complete without mentioning emergency funds? Let’s not ramble around anymore and look at the Whats, Whys, Wheres and, Hows of the emergency funds.

Emergency: The concept

a. Emergencies are unpredictable (yes, everybody knows).
b. Your money hates emergencies.
c. Sad, but one cannot always avoid emergencies.
d. Some examples: sudden illness, unexpected job loss, car damages, etc.

Emergency fund: The concept

The long-term purpose of any fund is to help one enjoy life and be tension free. But the journey of every fund is different. An emergency fund is a separate savings account utilized to cover or offset the expense of an unforeseen situation. It shouldn’t be confused with a long-term savings plan for vacations or buying properties. Instead, this fund works as a safety net, only to be drawn when financial crises occur.

How much? 

Several factors, such as one’s lifestyle, fixed expenses, and debts, affect one’s emergency fund size. But as per the industry experts, the rule of thumb is to set aside a fund equal to or more than three month’s expenses.
Don’t worry; nobody is asking to put the lump-sum amount – the idea is to follow weekly schedules by deciding on a small amount. (One can alter amounts as per the circumstances)  

Where to keep this money?

Money market or interest-earning savings account, which can be assessed easily without taxes and penalties, should be considered for emergency funds. Mutual funds, stocks, or other assets have chances to lose value if funds need to be utilized in a shorter period. The idea is to place money in a place that is accessible easily without penalties. 

The right time to use this fund?

One must be very firm in their decision to use the emergency savings only to cover expenses associated with an unexpected occurrence. Thus the only right time to use this fund is when you really feel it is the right time. Moreover, after withdrawal, it is important to start rebuilding the fund as soon as possible. The money saved today can (will) help in the long-term. 

This was majorly all about emergency fund. We at Kapwise would always love to help you start your journey to financial wellness.

Credit scores are another important stone in this journey.
To be continued…