A Brief Understanding of Emergency Savings Fund

How Much Should You Save For An Emergency Fund?

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As we know, life is unpredictable with many unforeseen situations. There are situations where you may require instant funds for sudden life events like job loss, medical bills, education fees, wedding expenses, home renovations, etc. Such circumstances leave us thinking about emergency funds that must be kept aside in savings accounts for situations like these.

Having emergency funds helps you stay prepared for any type of emergency that comes your way, avoiding panic and asking your closed ones for money, eliminating the need for dependence on others.

Read this article to know the answer to your question ‘how much money should I have in my emergency fund?’, factors to remember when deciding emergency fund amount, and more.

Also Read: Impulsive Buying: Impacts On Savings

Why do you need emergency funds?

Nobody knows what life can throw at us and at what time. We need to keep aside a certain amount of our earnings as emergency funds. This fund can help us in times of need such as medical bills, education fees, wedding expenses and situations like these. The main question that arises is how much should I have for an emergency fund? Well, this cannot have a fixed answer as no size fits all and everyone has different expenses and emergency fund requirements. You need to prepare a proper plan when creating a budget for your emergency funds.

Factors to decide the emergency fund amount

Here are the various factors that you can take note of when deciding on the emergency fund amount:

1. Monthly earnings and expenses: These are the major factors when deciding on the amount for an emergency fund. Keep a note about your earnings every month, your expenditures, and how much you can keep aside in your emergency fund.

2. Debt scenario: Include debts that you need to pay off when making a plan for your emergency funds as these debts will be subtracted when calculating the funds to be kept aside.

3. Health coverage: Today, everyone has health coverage and adding this to your expenses is helpful. You need to keep a clear amount aside for health expenses and then calculate the amount that needs to go into the emergency fund.

Also Read: Why Is Financial Stability Important In Life?

How to build your emergency fund?

Confused about how to start building an emergency fund? This is how you can proceed with it.

1. Set a savings goal: Determine how much you need in your emergency fund. Financial experts usually recommend saving three to six months' worth of living expenses. Calculate your monthly expenses, including rent, groceries, utilities, and other essentials. Multiply this amount by the number of months you want to cover to establish your savings goal.

2. Create a budget: Create a budget to identify how much you can save each month. Track your income and expenses to find areas where you can cut back. Always look out for your emergency fund in your budget, treating it as a non-negotiable expense every month.

3. Open a dedicated savings account: Open a separate savings account specifically for your emergency fund. It helps keep the money accessible but separate from your everyday spending. Look for accounts with decent interest rates and no fees to maximise your savings.

4. Automate your savings: Set up automatic transfers to your emergency fund savings account. Automating your savings ensures consistency and makes it easier to save without thinking about it. You can arrange for a fixed amount to be transferred from your checking account to your savings account every month.

5. Increase contributions over time: Whenever you receive extra income, such as a bonus, tax refund, or raise, consider boosting your emergency fund contributions. Increasing your savings rate helps you reach your goal faster and strengthens your financial security. Regularly review and adjust your savings plan to stay on track.

Open an 811 digital savings account for your emergency funds

Maximise your benefits by saving with the Kotak811 Digital Savings account, which offers interest rates of up to 7% with ActivMoney. Kotak Mahindra Bank, India’s first new-age financial company, introduces this no-minimum balance digital savings account. The Kotak811 account comes in two variants i.e. 811 Savings A/c and 811 Super Savings A/c, customised as per different spending habits, ensuring a perfect fit for your needs.

With zero-contact and video-KYC benefits, you can easily open a Kotak811 Digital Savings Account anytime and from anywhere. Enjoy the convenience of the best online banking solutions anytime. The account is designed to make banking simple and accessible, providing a seamless experience without the need to visit a branch.

Start your journey with Kotak Mahindra Bank today by opening a Kotak811 Digital Savings Account. Explore our wide range of offerings and enjoy the benefits of modern, hassle-free banking.

Conclusion

Now that you know the answer to the question ‘how much money should I have in my emergency fund?’, it is also helpful to understand that everybody does not necessarily have the same emergency amount as each individual has different income, and expenses.

Always consider the above mentioned factors when deciding your amount. Also, to build the best emergency funds to tackle financial emergencies with confidence, consider applying for a 811 Digital Saving Account from Kotak811.

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This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees, and contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.