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5 Easy Steps To (Re)Build An Emergency Fund

An emergency fund is a protective cover in the event of an unexpected financial blow. It helps you carry on with life and meet your obligatory expenses such as expenses for food and medical treatment, rent, basic repairs and maintenance, school/college fees, monthly instalments of loans, insurance premiums, and anything you feel is indispensable without disturbing your savings, opting for last-minute, unplanned loans, overutilizing your credit/debit cards, or selling and mortgaging your existing assets.

So here are five easy steps to build an emergency fund-

To create an emergency fund, you may first need to factor in obligatory expenses that are necessary. However, there’s no standard definition for what qualifies as obligatory. For instance, affording support staff such as domestic help or chauffeurs may be mandatory to some; many may find gym membership impossible to forego even in times of financial distress.

The bottom line remains that no matter what your set of obligatory expenses are, you need to reserve enough funds to meet them.

Initially, you need to set a reasonable goal for your emergency fund, perhaps ₹50,000, which can cover a wide range of your obligatory expenses or unavoidable emergencies like — a car repair, last-minute travel plan, some out-of-pocket health insurance costs, etc.

Create separate savings account for your emergency fund, and begin with direct, regular deposits, no matter how small the amount is. Add any overtime pay, bonuses, gift cash from relatives/friends and the refunds you receive into this account.

Next, rework your budget and cut your expenses as much as you can. Use cash instead of credit and pay down your credit cards. Develop the habit of making a list for grocery shopping to avoid impulse purchases, and it’s better to cook at home rather than eat out.

With a disciplined approach, your fund will begin to grow. And over time, you will be tempted to buy something for yourself or a loved one. Be careful; do not sabotage your goal — and your future — by spending your stash impulsively.

It is crucial that you continue to be disciplined. Repeat to yourself that you only want to access this money in case of a “true emergency”.

Finally, it’s better that you learn the importance of keeping the emergency fund intact. Every time you withdraw some money, make a habit of rebuilding your emergency savings for the next thing to come. It’ll surely help you to relieve financial stress in times of future emergencies.

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I'm a dreamer, scribbler, research scholar, and travel junkie from the land of five rivers, Punjab (India). 

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