Emergency Fund

Life is full of surprises. 

We should always expect the unexpected in the form of accidents, diseases, expensive equipment [TV, Washing machine] repair, job loss, car repair etc and that is why emergency fund is a must for each of us.

Now my concern is 

1. How Big Should be the Emergency Fund?

2. How to start ?

How Big Should be the Emergency Fund?

Most financial experts agree that one should keep aside atleast six months worth of our living expenses as emergency fund. The living expense should include food, grocery, petrol, insurance premium, clothing, rent, children's tuition fee etc. Six months is  the time allowed for finding an alternate source of income in case of emergencies. If you are not confident with six months, try to increase upto your level of satisfaction.

How to start ?

If you still don’t have an emergency fund, now is the time to start that. To accumulate 6 months salary is definitely a pain, so the key is to START SMALL. Open a savings account with an Auto Sweep facility and this will automatically put your money in the form of FD. 

The main advantage of such a saving account is the liquidity. You can take the money using the existing ATM card at any time of emergency and also get the advantage of FD interest rates. Once the target is met just forget about that and never touch it for any of your planned expenses.

Also its smart not to keep all you saving in the emergency fund. Anything you have saved above than the emergency fund target should be invested into Debt or Mutual Funds based on your goals. You can find more information about investment in the following links

http://mytipstowardswealthy.blogspot.com/2010/09/what-small-investor-may-do-under-this.html

http://mytipstowardswealthy.blogspot.com/2010/09/goal-based-investments-must-to-do-in.html