Importance of Emergency Fund in personal finance

Emergency funds are very important for these three reasons:

Safety Net from Emergencies: Emergency funds help you protect yourself from financial emergencies such as job loss, medical bills, etc. Ideally, the emergency fund should be equal to your 6 months of income. So, if you lose your job, you know that you can handle your expenses at least for some months without taking any credit.

Peace of Mind: Having an adequate amount of money in your bank account gives a feeling of security and safety because you know that in the case of an emergency, you can manage the situation without facing much difficulty.

Focus on Your Goal: When you are financially strong, the chances of you doing well in your studies and career are also high because you can put all your focus on your main target without worrying about your finances and set your goal for long-term growth instead of chasing short-term gains.

How to Create an Emergency Fund?

These are some simple ways to do it:

1. Keep track of your expenses and spend under your set monthly budget.

2. Open a separate bank account for your emergency fund and put a certain amount every month. This will help you to accumulate a big amount in the long-term.

3. You can open a recurring fixed deposit where you can invest a certain amount every month for fixed period, and it can give you interest rate of about 6% per annum.