Every financial advisor advises people to prepare an emergency fund. However, most of the people fail in this due to many reasons. Axis Bank has given 5 such reasons
Do not make these mistakes with emergency fund
While planning for the future, people always invest in emergency funds.emergency fund) make plans to prepare. In fact, all financial advisors advise people about this and whether or not someone has an emergency fund can decide their future financial condition. If you have an emergency fund, then not only do you face any unforeseen expenses, but with the help of this you can save money on your other investments (Investment) are retained. But even after having such a specialty, very few people are successful in creating an emergency fund. Axis Bank (Axis Bank) has listed 5 such reasons, due to which people are not able to keep an emergency fund ready even if they want. Before knowing this reason, what is an emergency fund to go.
What are emergency funds
Emergency funds are such funds which would cover your essential expenses equal to 3 to 6 months in case of any crisis. These are called emergency funds because you cannot avoid, avoid or deduct certain expenses. The most important use of this fund is when the sources of income are closed for some time. In this, job loss or salary deduction or leave without pay due to illness, accident etc. All the people are advised to keep such emergency funds ready for themselves, but still many times people are not able to prepare such funds even if they want.
Common mistakes made with emergency funds
mis-estimation of fundsAccording to Axis Bank, many times people think that by adding less funds than they need, they have prepared an emergency fund. However, when difficulties arise, their funds fall short and they are forced to break investments or borrow. According to the bank, you take out the unavoidable expenses for 3-6 months and try to prepare the same emergency fund. This includes children’s fees, EMI, installments etc.
Choosing the wrong investment option: Many times people choose the wrong investment option to prepare an emergency fund like long term FD, or stock market. According to Axis Bank, emergency can come up at any time, so keep an amount equal to your fund in such investment option which can be cashed at any time. Even if the returns are a little less. At the same time, it is not right to invest money in such options, which may be cashed fast but in any ups and downs, your entire amount will sink. You can keep your emergency funds in a savings account (50 per cent), short term FDs (30 per cent) and liquid funds (20 per cent).
used for non-emergency expensesAccording to Axis Bank, this is the main reason for the breakdown of emergency funds. When people treat the emergency fund like any other amount available with them, they spend it in shopping or traveling. According to the bank, always keep emergency funds out of your expenses. If you have more money than you need in the emergency fund, then you can use that extra amount.
Non recovery of funds after useMany times people use emergency fund. But after that they show slowness in preparing it again. Axis Bank advises that once the fund is utilized and your financial condition starts improving, then the first thing to do is to prepare the fund again to its limit.
Not reviewing emergency fundsExpenses increase with time, such as children’s fees or EMI for a new purchase, etc., which have to be paid in any case. In such a situation, review your emergency fund on a yearly basis and try to increase it if needed.
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