How To Build Emergency Fund With Low Salary

Unforeseen incidents, such as loss of job, home renovations or a car breakdown, can have a negative impact on your finances. Such situations require prompt financial action, which may put a burden on your current cash flows or exhaust your savings. Thus, building an emergency fund even with your low income can help you to meet any unexpected financial need without borrowing or depleting your savings.

However, setting emergency funds as a top priority can be challenging for many people due to low income. An emergency fund is a sum of money placed aside to cover unforeseen expenses without interfering with your regular cash flow or financial plans.

An emergency fund should be at least three to six months' worth of your monthly expenses, according to experts. If your monthly household budget is Rs 50,000 per month, your emergency fund should be between Rs 1.5 lakh to Rs 3 lakh.

Here are some guidelines to set up an emergency savings account with a low salary that will help you live a stress-free financial life.

Figuring out how much you need to save is the first step in creating an emergency fund. A minimum of three to six months' worth of living expenses should be accumulated to build your emergency fund. This goal will act as a standard by which to measure your savings approach.

Make sure to have a separate bank account for the emergency fund. The fund will stay intact if you keep it separate from your regular savings accounts, which reduces the temptation to withdraw money for monthly household expenses or lifestyle needs.

Consistency and discipline are required to create an emergency fund. Automating your investment process is one approach to make sure you are saving consistently.

Systematic investment plans or recurring deposits can help to automatically transfer a certain amount to your emergency fund every month. Many SIPs allow an investment as low as Rs 100 per month. You can even deposit Rs 10 in a few savings schemes like Post Office Recurring Deposit and it just needs Rs 100 to open the account.

Check your emergency fund level on a regular basis to check if it fulfils your financial objectives. Adjust your contributions if your expenses rise or you get more money to make sure your fund is still sufficient for unexpected events.

Maintain the effectiveness of your emergency fund by only using it for genuine emergencies. Clearly define the conditions under which these funds can be accessed, such as medical emergencies, urgent house repairs or temporary job loss.

The expense of healthcare is constantly increasing in India and it can be expensive to stay in the hospital for a few days. Getting a comprehensive insurance plan might help protect your finances from unexpected events, such as medical emergencies.

Emergency savings are crucial for financial stability in the modern world. Creating a sizable emergency fund with low income levels could seem like a difficult task initially. However, with financial discipline and a little planning, you can create an emergency fund with ease.