5 Ways to Save Money for Any Emergency

Most financial advisors recommend building an emergency fund that can be used in difficult situations.

The main advantage of keeping a fixed amount aside is that there is no need to break long-term investments in times of need.

Thus, it helps you meet your future financial commitments while taking care of your current financial position.

It is very important to determine the emergency fund so that this amount exactly matches your needs, and not less or more, when needed.

Life is uncertain, and one must be financially prepared to face it. Below are some smart ways of raising funds to deal with emergency situations:

1) Always Keep It Separate

The very first step is to have a separate account for the fund so that it is not mixed with any other investments.

It can also be kept in a savings account that has a higher rate of interest so that you can earn profit through interest as well.

When you feel that the amount is sufficient, you can put down an additional amount and use it for other types of investments like fixed deposits, mutual funds, or even bonds. Investments should be made according to the risk factor and tax bracket.

2) Tax Planning

People who are in a higher tax bracket should plan their tax payment in such a way that their deduction is not high, and when they pay tax, they also get a refund of tax. This kind of tax that comes back can be used as an emergency fund.

3) Credit Card

Credit cards are an expensive option because they focus more on spending than savings. Minimize your spending by starting with a small amount.

Be realistic while keeping the amount aside. Credit cards with high interest rates can also be reduced. These types of savings can help you build an emergency fund.

4) Salary Income

Save a small amount every month, regularly, when there is a salary increase. Keeping aside 2000 to 3000 rupees every month will not have any special effect on your daily life. Initially, one can start with a small amount and increase it over time.

5) Short-term Investment

You can invest money in short-term investments ranging from a few days to a few months. However, in this case, the return or penalty fee and the liquidity of the instrument must be considered.

Conclusion: The basic question here is: when and for what can we use this emergency fund? You can use it to meet unforeseen medical expenses that are not covered by insurance.

It can also be used for loan repayment in the event of job loss. This fund should not be used for vacations, branded clothes, or other luxuries, or else the purpose of the emergency fund will be defeated.