scorecardresearchHigh cost of airfare from Ukraine underlines the importance of emergency funds

High cost of airfare from Ukraine underlines the importance of emergency funds

Updated: 28 Feb 2022, 02:21 PM IST
TL;DR.

A sudden calamity or unforeseen circumstances can strike your door any minute. Be sure that you have funds to tackle such emergencies.

Emergency funds 

Emergency funds 

The Russia-Ukraine fiasco has escalated to an all-new level with the Indian students in Ukraine complaining of their inability to return home owing to high flight ticket rates. Many Indian students trying to leave Ukraine temporarily to escape the collateral effect of its tense military standoff with Russia have chosen to wait due to the exorbitant prices of the flight tickets. Some Indian students pursuing their degrees in Ukraine have urged the Indian embassy officials there to intervene to bring down the ticket prices.

News of how many Indians have decided to stay back in Ukraine due to lack of funds highlights the importance of having an emergency fund in place to meet situations like this. Different from other kinds of savings, this fund is an essential corpus to tackle a sudden financial crisis. This fund must be regarded more as a safety net that you can fall back upon in case you lose your job, fix major car damage, or cover sudden losses. Unplanned situations like a sudden outbreak of war or plague also underscore the importance of having an emergency fund. 

Many people in India restrict their understanding of emergencies only to medical emergencies. The word “emergencies” is an all-inclusive term considering the continued series of epidemic and war-like situations since 2020. People who have been at the receiving end of sudden emergencies involving large and unforeseen expenses often reveal how they were relieved to have money in their emergency funds that they could fall back on, while others found it difficult to arrange the money they suddenly needed.

Considering its utility, this fund must be used only for critical situations and not for regular expenditures.

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Planning an emergency fund

The availability of an emergency fund depends on the extent of its liquidity. The planning for this fund must be gradual and, hence, requires much deliberation and research. Decide on the amount you would like in the fund depending on factors including your income, estimated expenditures, and how long you would like it to last. Ideally, the amount in your emergency fund must be equivalent to at least three to six months of your monthly salary. 

Considering the sudden need for expenses that you must meet using this fund, you should save the money in a savings account to ensure immediate liquidity. However, you must also look at the interest rates offered by your bank on its savings account deposits. 

Emergency funds must be planned for both long-term and short-term needs. The Covid-19 pandemic situation that lasted for nearly 18 months had a diminishing effect on even some of the most generous emergency funds, thus, explaining the need to plan for long-term needs. The investments made towards creating a long-term emergency fund corpus must attract competitive interest rates over a period. This is because the amount in this fund must remain untouched to ensure the long-term availability of funds. 

A sudden emergency may mandate immediate fund requirements. Most of these funds must be kept in a savings account to meet sudden emergencies, thus, attracting low-interest rates. 

Setting a practical savings goal 

Regular savings is a must. However, planning an emergency fund necessitates a disciplined approach towards both investments and savings. The idea must be to set a practical savings goal every month. This is possible with you stringently allocating a portion of your monthly earnings towards this fund. To avoid any delay, you can transfer money to this fund on the day you receive your salary. Moving your tax refunds to this fund is also a good way to enhance the corpus of this fund. Make sure that you avoid making unnecessary expenditures using the money stored in this fund. 

First Published: 28 Feb 2022, 02:21 PM IST