Emergency Fund

Creating and maintaining an emergency fund is a crucial step in securing your financial future. Life is unpredictable, and having a safety net for unexpected expenses can make all the difference. You never know when you might face a situation that demands immediate access to cash, such as a medical emergency, automotive trouble, home maintenance, or sudden job loss. This is where an emergency fund comes into play, providing you with peace of mind and financial stability.

An emergency fund contains money set aside for future mishaps or unanticipated expenses. It is a financial safety net that can help you meet costs such as medical bills, or loss of income without having to borrow money at high-interest rates or dip into your long-term savings.

But in your emergency fund, how much money are you supposed to have? And where should you park it?

What's the right emergency fund amount for you?

The ideal size of your emergency fund depends on your unique financial circumstances, living expenses, lifestyle, and any outstanding debts. As a general guideline, it's advisable to have enough money saved to cover anywhere from three to six months' worth of expenses. This cushion can help you weather minor healthcare expenses or brief spells of unemployment.

However, it's essential to personalize your emergency fund based on your specific situation. For instance, if you're a single adult without dependents, three months of expenses might suffice. In contrast, if you're the sole breadwinner for your family, you may prefer a fund that can cover at least half a year's worth of expenses or more.

Where should you park your emergency fund?

Your emergency fund is primarily aimed at helping you if you are in urgent need of it immediately. Hence, there should be a high level of liquidity and easy access where you store your emergency fund. However, that doesn’t mean you have to compromise on returns. You can also park your emergency fund in financial products that offer good returns along with easy accessibility.

Here are some options to consider:

• Savings bank account: You can keep one month's worth of expenses in a savings account for immediate access to cash. Nonetheless, be mindful that keeping too much money in savings accounts can lead to the erosion of its value due to inflation and low interest rates.
  
  
• Liquid funds: These are mutual funds that invest in short-term debt instruments, offering higher returns compared to savings accounts while remaining relatively safe and liquid. You can redeem your units within a working day and have the money transferred to your bank account. Allocating two to three months' worth of expenses in liquid funds is considered a smart move.
  
  
• Fixed deposits: Fixed deposits offer guaranteed returns at a fixed interest rate for a specified period. While they are secure, they lack liquidity and may impose penalties for early withdrawal. Consider placing the remaining two to four months' worth of expenses in fixed deposits. 

And here's an exciting option to supercharge your emergency fund management:

Introducing INDIE, a revolutionary banking app by IndusInd Bank that offers an array of advantages:

• Up to 7.5% p.a. returns with an INDIE Fixed Deposit: Yes, you read that correctly. INDIE allows you to earn up to 7.5% interest p.a. on your fixed deposits, a rate significantly higher than what most other banks offer. Furthermore, you can seamlessly link your fixed deposit to your savings account, enabling you to draw from it when your savings account balance is low.
  
  
• Up to 6.75% interest p.a. with INDIE Savings Account: If you prefer not to tie up your funds in a fixed deposit, INDIE's savings account offers an impressive interest rate of up to 6.75% p.a. It's a fantastic way to grow your money while keeping it readily accessible.
   

• Emergency fund alert: You can set up an Emergency fund alert in Money Mate, INDIE's very own spend analyser. All you have to do is enable the fund alert toggle under select messages for you option and set up a savings account balance limit. You will start receiving notifications whenever your savings account balance goes below the set limit. 
   

Whether you're looking to save, manage, or grow your money, INDIE has tailored solutions to meet your financial needs. Don't wait any longer. Download the INDIE app today and build your emergency fund with confidence and ease. Secure your financial future with INDIE! 

Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.