Compensation & PerksSalary Advice

How to Plan For an Emergency Fund on Your Salary?

In emergencies, do you find yourself wondering where to get the money? The crux of ideal financial planning is preparing for unexpected emergencies and securing future finances. So, an emergency salary fund is a necessary corpus that you must set aside for such situations. It is the salary fund to which you can turn in times of crisis or for unexpected and unplanned scenarios, not for meeting your regular expenses. As a result, you must tailor it to meet any unforeseen financial shortfalls. Planning for an emergency fund on your salary helps when urgent.

Getting started with saving money from your salary is the most challenging part. These most effective and simple steps will help to begin. Let’s get started on the practical steps to set up an emergency fund on your salary without further ado.

Content List 

  • 5 Most Effective Steps to Plan an Emergency Fund 
  • 7+ Effective Tips to Invest Your Salary 
  • Should You Keep Your Emergency Fund Liquid? 

5 Most Effective Steps to Plan an Emergency Fund 

Don’t quit before you begin. Follow these 5 simple and practical steps to set up emergency funds. Following these steps will surely make it easier. 

emergency fund on your salary

1.  Track Your Savings and Expenses 

Before you plan for the emergency salary funds, know your salary, how much you are saving and what the expenses are. Learn how to plan salary. You can classify your costs as fixed and variable. Track all the expenses from utility bills to house rents, grocery bills, electricity bills, transportation and eating out and other entertainment expenses. Then, decide on how to save from the salary and where you can cut your expenses. 

2. Set Several Small Goals Rather than Big Ones 

Instead of setting a significant goal, aim for a shorter one first. Whatever it takes to make your initial goal appear achievable.  Reaching your first goal can motivate you to keep going. Don’t stop there – set your second and third goals even higher. Saving will become a habit by then, and your positive motivation will propel you toward bigger goals as you achieve smaller ones.

3. Figure out a Way to Cut Down Non-Essential Expenses 

Reduce your restaurant and takeaway spending by committing to eating out/ordering food only once a week. Discover new recipes to try at home. Make a list and stick to it before going grocery shopping. Avoid adding random items to your shopping cart simply because they look appealing. Allow yourself a cooling period before checking out when making online purchases. Place the item in your shopping cart but do not complete the transaction. Check back every 24/48 hours to see if you’re still enthusiastic about the product. This prevents you from overspending on impulse purchases and later regretting it. Find ways to reduce your fixed expenses, such as mobile phone plans and OTT video subscriptions. Cancel any subscriptions that you aren’t using or switch to cheaper ones. 

4. Automate Your Savings 

Set up a separate account for your emergency fund and have your chosen contribution amount deposited automatically by your bank. Rather than your salary account, use another type of account you can’t easily access. You can choose from liquid funds to short-term RDs and debt mutual funds. You’re unlikely to miss it. And don’t obsess over the account balance — doing so will only make growth appear smaller and slower. Forget about it and let time take its course. 

5. Don’t Overspend or Use Credit Cards

Once saving has become automatic, don’t be lulled into a false sense of security and allow spending to creep back up. For example, if you give up buying a new pair of shoes every month only to replace them a few months later with a new monthly shopping habit, you’re not saving anything!

Having a sufficient emergency fund is critical to your financial security. Be realistic, but strive to reach your ultimate savings goal as quickly as possible. That may be enough to make life more enjoyable.

 7+ Effective Tips to Invest Your Salary 

As salaried employees in India, various investment options exist in 2022 for Indians to invest wisely and grow their hard-earned money. Traditional investment options such as Fixed Deposits, Recurring Deposits, Flexi Deposits, National Pension Schemes (NPS), ULIPs, and others are available, as are modern investment options such as investing in equities, Cryptocurrencies, and so on. Here, we will discuss some 7+ practical tips for investing your salary. 

Should You Keep Your Emergency Fund Liquid? 

The ability to cover unexpected expenses is why an emergency salary fund should be liquid; this is the most crucial factor to consider when deciding where to park your emergency fund. You should be able to withdraw the funds whenever and however you need them. At the same time, you must avoid being penalised in the form of an exit load or a pre-withdrawal penalty. The value of the investment should not fall and should provide excellent returns. You should also learn how to plan salary. 

Conclusion 

Saving is a regular occurrence. It’s not something you do once and then forget about. Check your progress and review your budget regularly, such as every six months or when you get a raise at work. This allows you to identify and resolve budget issues quickly. Furthermore, understanding how your money is spent and watching your savings grow gives you an adrenaline rush, allowing you to reach your goals faster.

FAQs

1. How much money should be saved in an emergency fund?

While the size of your emergency fund will vary depending on your lifestyle, monthly expenses, income, and dependents, the general rule is to save three to six months’ worth of costs or, ideally, even a year of expenses. 

2. Where should I invest two lakhs for six months?

    You can invest money for six months in these accounts: 

  • Recurring Deposits. Recurring deposits come with the flexibility to invest an amount every month. 
  • Money Market Account. It is an interest-bearing account at a bank or a credit union. 
  • Debt Instruments. 
  • Bank Fixed Deposits. 
  • Post- Office Time Deposits.
  • Large Cap Mutual Funds. 
  • Corporate Deposits.

3.  How can I invest money wisely? 

Follow these seven simple principles to invest money for healthy returns without taking too much risk.

  • Keep savings and investments separate
  • Invest to reach long-term goals
  • Start sooner rather than later
  • Use tax-advantaged accounts
  • Don’t be a stock picker
  • Avoid high fees
  • Use automation
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