Dont wait for an emergency to make an Emergency Fund- Ram Valia

Dont wait for an emergency to make an emergency fund.

As our lives are surrounded by uncertainties and events that we might not have even dreamt about, an unfortunate event can be right around the corner ready to take a toll on you when you least expect it. The intent is not to scare the reader but make him aware that expecting the best and being ready for the worst can make him ride smoothly through all of life's fancies.

We never expect to lose our job as we might consider ourselves indispensible and there it is, one day, right in our faces the economy starts slipping, the company starts losing revenue, coupled with that exactly at this very point on time its struck by a clients claim or other natural calamity. all of this in a climate with the rates rising in such times debt payments become difficult. And to offload the heavy weights the company awards you with the one thing that you would be despondent to receive. The dreaded 'Pink Slip'

What do you do now.? As the time when you lose the job is exactly the time when all vacancy banners are hid in the dark room

With the stressful lifestyles, unhealthy eating habits and uncomfortably long hours of incorrect posture puts up a serious toll on our bodies. Accept it or not its a machine that can ware out and wither. Managing a medical emergency can shake up your entire financial plan and weaken your years of financial saving. Personally I haven't ever been to a medical store to find out that the medicine that I purchased the last time is still available at the same price. This throws the spot lights on the perennially rising costs of medication and treatment. Funding such an emergency on one's self or the dependant family member can send your finances for a toss. It can be an elective medical surgery . Illness or an accident, the treatment and rehabilitation costs are phenomenal

in any of these situations either taken together or considered separately, how would you fund your regular expenses, gone are the times when you would spend all your earnings as there are no earnings.

How do you pay for the loans taken?
How do you go for the vacation that you had planned for?
How do you pay for your children's school tuition?
How do you plan for the new car?
How would you be able to buy your spouse that diamond ring that you have paid the advance for?
Jumping onto your previous years savings which might not be that liquid and immediately available will force you to sell them at a price that is lower than its worth..

Taking up this advise simply means to keep aside a fund equivalent to your next 6 months expenses including EMI's and all other compulsory expenses into a highly liquid instruments.
These instruments range from 'Sweep-in Fixed Deposits' to 'Liquid debt funds' and Short Term Bond Funds. All of them have similar features of keeping your money safe and are immediately available when you need them.

The differences can be understood as follows. The Sweep-in FD empowers your savings account to be linked to the FD account so that your idle funds can earn you the FD rate of return and not a a mere savings account rate which is around 3.5%. Hence it makes your savings account act like your FD account. As and when you need the money you only have to issue a cheque from the savings account and the appropriate amount is only deducted keeping your FD maintained with the remaining funds. The amount that is withdrawn using a cheque will get the interest applicable for the slab for the time for which it was in the FD.

A liquid fund is offered by a mutual fund house, it falls under the debt category of funds. It invests into short term fixed income instruments with an average maturity of around 91 days that are issued by banks, NBFC and large corporate houses.This enables it to give you better returns than a savings bank account but not as high as an Sweep-in FD.

A Short Term Bond Fund invests in debt securities like Treasury bonds issued by Government of India and other Bonds and debentures floated by banks and corporate houses. This is a tax efficient instrument for the investors in a high tax bracket.. Due to its sensitivity to changing interest rates its return are accompanied by an element of risk but as they are short term in nature it is quite low.

So be it in any form but ensure that an emergency fund covering 6 months of all your required expenses is up and running for you way before any emergency catches up with you. For the very beginners start with an amount equivalent to Rs. 50000/- and gradually move upto your goal of 6 months expenses. And remember luxurious getaways, fancy shopping spree and an unthoughtful splurge does not count as an emergencies.


Cheers and happy planning.
Think before you act as
'Its all in the mind.'