Your financial plan needs to be built on the solid pillars of safety and security. While institutionalised insurance counters the risk to life and property, it’s wise to have your own personal insurance too – your emergency fund. It’s a reserve amount to help you tide over a crisis. While setting it up, remember to:
- Invest in liquid avenues such as savings accounts or money market mutual funds, which can be encashed within 24 hours. For an emergency fund liquidity is important, not high returns.
- Have a separate account and not club it with your regular savings account.
- Let your spouse/ family member know about it.
- Create it in joint names, such that any one of the joint holders can operate it.
An emergency fund is sacred. Do not tap into it unless there’s an actual emergency in your family. The cumulative effect of interest being added back and compounded will help the fund keep pace with inflation.
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