Planning for an emergency fund

The pandemic has thrown life and business off kilter. Deaths have become mere statistic and many a living are left hanging in the balance, with no or partial income.

Such unprecedented times necessitate an emergency fund.
 

Do you remember the story of the ant and the grasshopper? An ant and a grasshopper were good friends. During summer, they used to play together and roam around. The ant also used to work, find and store food for winter. On the other hand, the grasshopper was short-sighted and happy living each day with gay abandon. Come winter, and the grasshopper was in a quandary. The ant had her emergency fund, but the grasshopper had none. 
 

An emergency fund, as the name suggests, is money kept aside only for exigencies. Experts say one should ideally have 3-6 months of operating cost, i.e. the amount required for your monthly expenses, as an emergency fund. Mammoth task? No, not really. Let’s break it down and see how one can do it. 
 

Consider this as your total income. 
 

From this, apportion an amount for regular expenses and break it down into, say, bills, groceries, travel, medicines, savings, etc. From this, just reserve some amount every month for an emergency fund.

Where does one park this fund? In savings account, fixed deposit, mutual funds?
 

The choice is yours. But here’s what you need to keep in mind:
 

- Since this fund is only for emergencies, invest in the safest available options

- Part of the fund should be easily accessible so that one can withdraw instantly (though earning lower rate of interest) and part of the           fund can be invested in safe schemes at higher returns

- Set a target amount for the emergency fund and set it aside before your other expenses

- Set a goal for every month

- Reduce non-essential expenses