Have you ever imagined, what will you do when a sudden need for ₹5,00,000 appears to you without any notice?
It will make you panic and leave you anxious, right! (Afterall ₹5,00,000 is not a joke). Well, an emergency fund can handle that sort of scary situation easily.
In this chapter, we will understand the meaning, importance, and ways to build a fully-funded emergency fund.
Before that, to clear your concept of building a beginner emergency fund, you can refer to this link: Building a Beginner Emergency Fund
Now, let’s go deeper into the topic.
What is a fully-funded emergency fund?
A fully-funded emergency fund is your personal expenses of 3-6 months that you set aside in savings to deal with life’s unexpected events.
Suppose you encounter any sudden emergency like a natural disaster, severe disease, job loss, etc. In that case, you need a considerable amount of funds, and if you already have an emergency fund with you, you can quickly cope up with the situation.
Let’s make it more clear with an example-
Suppose you are earning ₹30,000 per month and can live on ₹18,000. Here, you can use the remaining amount for your emergency fund (after clearing the undeniable debts and EMI’s, if any).
How to get it started?
The primary aspect before you start saving is budgeting. This shows how much your income is and what is the pattern of your expenses. Once you know about your budget (you can cut down all the unnecessities, clear your debts and ignore new debts, etc.), it will be easier to save your expenses.
How to decide you need to save 3 months of your expenses or 6 months of expenses?
I am presenting a few scenarios for your better understanding:
i) If you are unmarried, and there is no liability towards your family in terms of money. You can cut your personal expenses of 3-4 months and then save it like this much would be safe enough for you.
ii) If you have a family of 3-4 members and you are the only earning member with no stable job. Believe me, at least 6 months of your expenses should be saved there in your bank anyhow.
Why is it much needed to maintain a fully-funded emergency fund?
It’s all for you!
If you see, it is you who will need a fully-funded emergency fund. You can start saving the large emergency funds once you clear all your debts by saving small initial funds.
It is crucial as it will be going to help in all the most significant emergencies. By saving your 3-6 months’ expenses, you can deal with so many unexpected situations like long medical bills, most challenging days between a job change, and so on.
This may sound harsh, but some believe that having a small emergency fund is fair enough to sustain as if they knew about the upcoming emergency scenarios, and it would be kind enough for them. Wake Up; either you do it now or wait for the real big trouble knocking at your door. The choice is yours!
It is much needed for you to understand how important it is to save a fully-funded emergency fund. It will take you to another level.
Steps to save up your fully-funded emergency fund:
It is challenging to find out the funds in your budget and take out the money to save up for the fully-funded emergency fund. Here are some steps which might help you in dealing with it-
1. Set Aside The Money
You can save up all that money you were using to pay off your debts (utilizing the debt snowball method) to set your fully-funded emergency fund. Further, try not to spend that money as it will just increase your bad money habit and create a hindrance in saving up.
2. Cut off the Unessential
Ah! it is basic.
One can completely understand how essential it is to cut off the unessential. But it’s important to remind yourself to check your budget again and again. It’s because from time to time, it is naturally possible that you unknowingly increase your spending habit. So, check it regularly and find it, cut it, and add it to your fund for better.
3. Seek Discomfort
Working under your comfort zone will not take you to greater accomplishments. Suppose you are doing a job for so long and earning a considerable amount of income. What if you will make extra apart from your job income? When you come out of your comfort zone of working and expand yourself more, you will get plenty of work suitable for your skillset that you can add to your income.
Example: If you are interested in writing, you can do freelancing as a content writer, or you can be a designer for any firm if you are interested in designing, etc.
4. Cut Off Extra Stuff
It would be best if you sell some stuff which you don’t really use. Sell them to someone who will pay a fair lump sum amount. Either offline (friends, friends of friends, relatives, etc.) or online (OLX, Facebook, etc.), from whatever ways you get a genuine response for your product, go for that. It will be a great aspect of your fully-funded emergency fund.
Motivation! Motivation! Motivation!
Motivation is something that comes from the inside and without it following these steps is quite difficult.
Always keep yourself motivated and surround yourself with positivity because it is a critical aspect to keep moving.