One important advice that you would have received from any investment expert is to have an emergency fund that will help you manage your expenses for unplanned circumstances. Assuming you have an emergency corpus, how do you differentiate between the regular expenses and the emergency ones? Read on:
How big should my corpus be to think about this?
If your fund should be able to take care of your expenses for a period of 6 months to one year, you have accumulated enough to think about how and when you can spend your emergency corpus.
What are not emergencies?
There could be times when you are caught off-guard by your annual expenditures like the premiums of insurances, your child’s school fees and car/house repairs. But these are not emergency expenditures. You need to plan for each of these in advance and set aside enough money for them every year.
How do you know it is a legit emergency?
3 questions can help you differentiate between a legitimate emergency and an annual expense:
- Is it really unexpected?
- Is it an urgent expense?
- Is this the only way to pay for the expense?
If the answer to all the above is a ‘Yes’, then you can call the situation an emergency and use this corpus.
What happens after you’ve used up your emergency fund?
Make sure you replenish this once you’re back on your feet. Review your monthly expenses periodically and increase your emergency corpus accordingly. You can start an SIP and create an Emergency fund using Scripbox.