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I Have An Emergency Fund. Now What?

It’s very encouraging to see how many of you are done with creating your emergency fund. What should you save for now?

It's very encouraging to see how many of you are done with creating your emergency fund. What should you save for now?

What an emergency fund does is to make you worry free about your next six months. The next step would logically look further into the future and is a two-part exercise. You must now become worried free over:

#1. Your next 5 years

#2. Your future 15-20 years from now (even if it seems a long time away, you know you are definitely going to have one!)

Why the next 5 years?

Simply because most of us cannot fulfill all our wishes using just our salary. Be it the road trip with friends or the bike you want, anything that's worth 2-3 times our monthly income deserves some planning so that we do it right.

5 years I get, but why should I bother about a distant and unknown future?

The distant future tends to come pretty fast when you are not prepared and thus the smart ones start pretty early even if they don't make much. Investing even a little bit today can make sure that you can afford your future. Yes, you might be pretty undecided about the so called long term, for example, your dreams and aspirations, but it's better to have money and not need it than to need it then and not have it :)

Tip: the longer your money is invested, the more it earns. So you will make it easy for your future self if you start earlier.

What should you do?

Of the savings, you have every month (we recommend that you do at least 20% of your salary) put half or more in a portfolio of Debt Mutual Funds (something like Scripbox's own short term money) or even a Recurring Deposit. It's likely that this amount will get used up as new short-term goals will keep coming up. You will need to keep replenishing this amount.

The distant future or 15-20 years from now

Put the remaining half in long-term focused instruments such as equity mutual funds.

A smart way to start with equity investing is to invest in tax saving mutual funds or ELSS funds. This way you save tax and you also invest for the long run.

You can start a Systematic Investing Plan so that every month you are putting away some amount for your future self.

Note: It's not necessary that you invest equal amounts for both aims. You can change the proportion based on your savings ability. The important thing is that you put away something for the long run. Think of it as a gift for your future self.

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