Before investing in mutual funds or setting up a Recurring Deposit (RD), it is essential to build an emergency fund. Think of emergency fund as your seat belt. It protects you from different vagaries of life. At least, financially.
You don’t need to do a lot of research before building an emergency fund. You can easily park your money in a savings account that you rarely use or if you don’t have two savings account, you can easily open a savings account online.
Liquid funds, a category of debt mutual fund with low risk, is also considered as an ideal option to build an emergency fund. Typically, you should have at least 6 months of expenses in your emergency fund.
Here are some of the reason why should have an emergency fund if you are in your 20s:
- You may lose your job. It may take you a few weeks to a few months to find the next job. But, in the meantime, you have to pay your bills and feed yourself.
- If you are staying in a different city, you may have to rush home for some emergencies. Booking flight tickets at the last moment is not at all cheap.
- If you have a history with hospitals. Health insurance comes with many clauses and getting your office medi claim will take some time. So, it is better to be prepared.
- Road accidents can happen at any time. An emergency fund will help you with the doctor bills and other expenses.
- If you are staying in a paying guest, you may be told to look for a new place. That’s scary and what is scarier is not having money. Deposit, first-month’s rent and brokerage can create a dent in your pocket.
- You may have to take an urgent flight. You can get an interview call from companies based in some other city. While the company will reimburse the flight tickets, you have to initially book the flights.
- Vehicles need regular maintenance. Your two-wheeler or car can break down or parts may become faulty. Emergency funds help you to be prepared with such scenarios.
These were the seven reasons why you need to have an emergency fund in your 20s. We are going to talk more about emergency funds in the coming days.
Have I missed any point? Let me know in the comments section below.