IndiaP2P Blog

Responsible content on personal finance & economics that makes you smarter about money.

What is an emergency fund and why do you need one?


Blog Image

Life is a journey full of unexpected twists and turns. While some of the surprises are nice, some are not. While we all aspire for happy surprises, it's also crucial to be prepared for the unexpected, particularly when it comes to your personal financial well-being. Unexpected circumstances can send people and households into a downward spiral of debt if you are unprepared.

One simple way to do so is to set aside a little sum of money for emergencies. Using our emergency fund, we will be able to deal with any unexpected income or spending shocks, such as job loss, medical problems, home/car repairs, and so on.

Liquidity is essential for surviving any income or expense shocks, because it allows us to buy enough time to recover. As a result, establishing an emergency cash reserve is an important step on the road to financial security.

How much emergency fund is sufficient?

Generally recommended emergency fund is between 3-6 months of worth of expenses. However, it may vary depending on one's specific circumstances, such as income level and income volatility, among other factors. A tenured professor with a regular/stable source of income, for example, may require a smaller emergency fund than a real estate salesperson with an unpredictable and variable income.

Second, by purchasing enough insurance or planning ahead for expenses that are predictable in nature, one can avoid or control some expected but unpleasant surprises.



Should you invest your emergency fund?

The goal of an emergency fund is to provide a cushion to cover any unexpected expenses. Investing in a highly liquid, low-risk asset class, on the other hand, will help you beat inflation and preserve the value of your money.
As a last point, I'd want to emphasise the importance of establishing an emergency reserve before allocating funds to financial goals. Because an emergency fund is designed to protect you from unanticipated circumstances, it should be prioritised.


Author: Ravinder Voomidisingh

Other Blogs

Is P2P lending safe in india?



What is P2P lending? Peer-to-peer (P2P) lending has emerged as a viable alternative to traditional banking services in India. This financial model enables borrowers and lenders to connect with each other directly, without the intervention of a financial institution. P2P lending platforms offer investors higher returns than traditional investments, such as fixed deposits, while also providing borrowers with flexible repayment terms and lower interest rates. However, like any other investment, P2P lending comes with risks that investors must be aware of to protect their investments. Top risks associated with P2P lending in India are as follows: Platform Risk: The platform risk is the risk of the P2P lending platform defaulting, either due to a shutdown or bankruptcy. This risk can result in investors losing their investments. To protect oneself from platform risk, it is crucial to choose a reputable P2P lending platform with a good track record. Credit Risk: Credit risk is the...


Making Wise Investment Decisions in India: CAPEX vs OPEX



Making Wise Investment Decisions in India: CAPEX vs OPEX   When it comes to making investments in India, the decision you make between Capital Expenditure (CAPEX) and Operating Expenditure (OPEX) can have a huge impact on your returns. Knowing the difference between these two investment strategies and how they are used is essential for anyone looking to make smart decisions about investing their hard-earned money. Let’s take a closer look at CAPEX vs OPEX in India and explore which option may be best for your unique needs. What Is CAPEX? CAPEX is an investment that involves long-term purchases made by businesses or investors. These purchases are typically large assets such as real estate or equipment, which must be paid off over time. In addition to purchasing the asset upfront, there are often additional costs associated with CAPEX investments such as maintenance fees, insurance costs, and taxes.   What Is OPEX? OPEX is an investment strategy that involves...


Maximizing Your Savings: The Ultimate Guide for Salaried Individuals in 2023



Maximizing Your Savings: The Ultimate Guide for Salaried Individuals in 2023 Are you tired of living paycheck to paycheck? Do you wish you had more savings in the bank but don't know where to start? Look no further! The Ultimate Guide for Salaried Individuals in 2023 is here to help. In this comprehensive and easy-to-follow guide, we will show you how to maximize your savings and take control of your finances. From budgeting tips to investment strategies, we'll cover everything you need to know about saving money in today's economy.  Let's dive in and start building your financial future today! Introduction to Personal Finances There is no one-size-fits-all answer when it comes to maximizing your savings as a salaried individual. However, there are certain best practices that can help you make the most of your hard-earned money. One of the key things to remember is to start saving early. The sooner you begin setting aside money, the more time it has to grow through compound...


Have more questions? Click here to schedule a quick call with our investments team


Start Investing