Building an Emergency Fund is actually a prerequisite to Investing. To prevent one from discontinuing investments, selling illiquid assets at a loss or incurring debt at high rates due to poor financial planning.
Every family should have life insurance for the breadwinner(s) and medical insurance with enough coverage for all members. This takes care of half the problem.
One can keep 25-50% of the emergency fund in a savings or sweep account and the rest in short term or liquid debt funds. Our Wealth Advisors can suggest the appropriate fund as per your requirements.
Whether your emergency fund should be 3, 4 or 6 months of your monthly income depends on:
- Your income, expenses and disposable income
- The number of earning members in your family
- How secure your job is
- Which kinds of and how much insurance cover you have
- Your debt: EMIs or other commitments
Lastly, treat your emergency fund as an emergency fund. Resist the temptation to use the reserve for other expenses.