Inflation has once again hit us and having an emergency fund in 2023 is mandatory. The financial system is collapsing as the banks are dissolving, companies are firing employees and there’s a shortage of cash in the market. Take this as a cue and start an emergency fund for a financial cushion.
If Covid has taught us anything, it is to stack some cash and use it in time of need. Know that feeling when you’re short of money and you find some cash in your jeans pocket? A happy feeling, isn’t it? Having an emergency fund to rely on can be very relieving.
What is an emergency fund?
Much like the name suggests, an emergency fund is money set aside to cover you in any emergency situation. Ideally, these situations can be sub categorised into the following:
- Medical bills
- When you fall short on income/unemployment
- House repair
- Vehicle repair
When you have an emergency fund, you would not have to use your bank balance to deal with any unprecedented issue. Why? Because you already have your secret weapon: The emergency fund 💪
The idea is to keep the funds as close to cash as possible because the dependency is uncertain. Now say you have invested some amount in real estate. You can’t sell it off in the blink of an eye, so that cannot be considered an emergency fund.
How much money should you keep in an emergency fund?
Now if you are wondering how much money should you stash in an emergency fund, we’d say it’s subjective.
The amount in an emergency fund will differ from person to person, their needs, lifestyle and monthly income.
Ideally, you should try keeping your 3 to 6 months’ salary in the emergency fund. That way, you would not have to disrupt your financial plans with any unexpected expenses.
As a thumb of rule, start taking small steps and saving a little amount every month. If it is an emergency fund, treat it like one. Saving your entire salary for a month would only make you fall short of money mid month. Eventually asking you to take out the cash from the fund.
So long story short, save small amounts say 20% of your salary every month and be consistent with it.
Where to keep the emergency fund?
High-interest savings account
You can create a new bank account to store the emergency fund and earn interest on it. There is a slew of banks that will provide you with lucrative interest rates w/ as high as 9%.
All you need to do is, do some basic research on the neo-banks, compare them and go with whatever seems the highest or safest.
Mutual funds with easy liquidity
Investing your emergency amount in a mutual fund might not be a bad idea if you are smart about it. Now you must be wondering, what’s there to be smart, it’s a mutual fund, right?
Well yeah, you are right about it to some extent. But if you invest in any risky MF and the current market price is lower than the invested price, it would require you to liquidate at a loss. So try investing in the most stable MF that you can sell anytime.
Getting a prepaid card for emergency funds in 2023 is the best idea. Keeping the money in the bank is fine but most of the time you end up using it. How a prepaid card works is, you recharge your card and use it later.
If you are a student looking for a prepaid card, Akudo is all you need. We have a gamified set-up that enhances the overall experience for you. And that’s not it, we also ensure the best rewards and cashback in town. If this sounds like your kind of card, Click here to check it out now.
Buy some gold
You can also get any golden item as an emergency fund. Not only you can make the investment and set your fashion statement but you can also get the best return on money.
You can quickly go to any jeweller’s shop and sell it off instantly. Try getting smaller items so that there’s no hassle.
5 Tips to kick-start savings and build your emergency fund
Building an emergency fund is harder than it sounds. But once you ace the tips, there is no barrier for you. Here are 5 tips to start an emergency fund in 2023 like a pro
1. Reduce your monthly expense
Ordering food more than three times a week? Or addicted to buying the stuff that you don’t even need? Well, try cutting down on those and sticking with only the necessary spending.
Create a journal and set a monthly budget. Jot down the absolute necessities like rent, travel, electricity and more bills as applicable to you. Take out some more miscellaneous amounts and save the rest.
2. Don’t exploit your credit card
You can never put money in your emergency fund if you keep overusing your credit cards. Using a credit card can be addictive and most of the time you make the transactions like someone else is paying the bill.
Try abiding more with buy now pay now rather than buy now pay later. Make a habit of using credit cards in dire situations.
3. Try getting a higher rate on your money
Keeping cash is very old school and honestly, a bad idea. Take it this way, when you are stacking the cash, you are not growing that money over time. You need to earn some interest and make that money swell in order to fight inflation.
So how do you do that? Invest your money in FDs and easily liquidate mutual funds so that your money increases over time and you have the liberty to cash it out at the earliest at the moment of need.
4. Sell off old items
Have any items that are no longer in use but valuable? Well, you can sell them off and make easy bucks. Selling an item in an emergency situation might be tricky and of course slow! You can prepare well in advance by listing the item that you want to sell.
Get a buyer, verify his identity and get that transaction complete. And lastly, don’t splurge this money. Instead, put it in an emergency fund to use it at the time of need.
5. Start a side hustle
If you think you cannot save as much money with your current salary, it’s time to start a side hustle.
It’s 2023 and getting a part-time gig is easier than before. Whether you are a coder or a writer, a sports fanatic or a trader, you can easily earn a good chunk of money following your passion.
An Emergency fund is more important than you might take it to be. An unforeseen situation can strike whenever and you have to be prepared for it. The best time to start a rainy day fund or an emergency fund is well in advance.
The more money you save, the better financial cushion you will have during the time of downfall.
And if you have made it to this part, you have already rolled many tricks up your sleeve. All it needs now is a small step 👣
So buds, good deed doesn’t require any delay! Get saving today.
Thanks for being an amazing reader, we’ll see you in the next blog 🤓