Hello Readers!

COVID-19, its massive spread all over the world, and the loss of mankind because of it have forced individuals to accept change. It has made us believe that very little of what is essential for our life or thing that affects our life is in control.

In the last some months we have come across many things that prove, we don’t have full control over anything. It can be best understood by the example of forced job losses in recent months across the globe. The global travel and tourism industry alone is estimated to see 100 million job losses in 2020.

Even experienced and talented executives who are working for long years like 10-15 years realize that their jobs are not secure. Well, job loss or pay cuts hurt more when any individual lacks an emergency fund to fall back on while monthly cashflows slowdown. Then the thought arises in their mind, “Is it too late to build an Emergency Fund?”.

Let us answer these questions.

IT CAN BE A ROUGH RIDE

An emergency fund is a corpus that we build to cater to our expenses on our rainy-day. It is advised that your emergency fund should be equal to at least 6 to 12 months of your expenses including your housing loan EMI or rent. Ideally, Liquid mutual funds are best-advised funds to individuals for creating their emergency corpus, as it is very low-risk mutual funds, and can be accessed easily in case of an emergency.

If you don’t have an emergency currently, I would suggest, start investing for your emergency, instead of low income or no income. Obviously, this would be tough, but it would be harder if you think about it in later life.

Primarily, calculate your monthly mandatory expenses, these can be, cost of your house, utilities, groceries, payments to your house help, children’s education cost, and any medical-related expenses. The amount equal to the sum total of these expenses is your emergency fund. Also, you must include an amount equal to your Mediclaim premiums, car insurance and other payments that you may face within the year in your emergency fund.

HOW TO BUILD YOUR EMERGENCY FUND? 

Very first, evaluate your investments other than the long-term assets like money invested in equities, mutual funds, in gold, in savings certificates, and the various insurance premiums you are paying. Go reducing those investments or policies which one’s you don’t need.

If you have many insurance policies over the years, analyze them, and pick the ones which you don’t need. If you have a good term insurance cover, you can go cutting life insurance products, if you have any.

Here it is advisable to clean up your investment portfolio, get out of unwanted life insurance policies, and pull out the old savings certificates due for maturity. The money you get from these can be used as a cash flow for your emergency fund.

Now its time to go cut down your unnecessary expenses, which can add to the extra cash flow towards building an emergency fund.

Maintaining your certain kind of lifestyle, in an uncertain economic environment, where the option of a good new job is not available for the next some months, is difficult. You have to take harsh decisions and make compromises. Go spending and maintaining only those things that are extremely useful to you. For example, If you have two cars, analyze, do you really need both, selling one will automatically release cash, which can be added towards your emergency fund, plus it reduces your fuel expenditure too.

These steps can be taken to save money and create your emergency fund, which will help you cater to your financial expenses in the worst situation, without taking any loan or interest payments. Taking a loan or debt on interest can be useful, but it can get you into a debt trap that is avoidable in times where income uncertainty is high.

So basically, look on only necessary expenses, till you get back on a regular income inflow and focus on creating an emergency fund.

For any kind of investment query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.

Happy Investing!

(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).