Sunday, February 21, 2010

Emergency Fund

Emergency fund according to me is a building block in personal finance. It's needed to that your financial structure doesn't come down when a 4 Ritcher scale earthquake hits. Emergency fund helps you absorb little ups-downs of life.

All the PF guru's I read advocate that 3-6 months of expenses should be kept aside as emergency fund. Manshu from OneMint recently confessed that he never does this. Well, I like to keep at least 3 EMIs of my mortgage aside as emergency fund. That's sufficient for me to sleep peacefully at night. Now, you will say my EF doesn't cover my other expenses. Yes and there are reasons for same.

Dual Income - We both earn. In case one of us lose jobs, other's salary will be there to cover our daily expenses. So it's mainly mortgage payment that we might struggle with at that time.

No Kids - We have no kids as of now and hence not lot's of unforeseen expenses at least theoretically.

Job Security - My organization has done quite OK in this recession time. It feels to work in there quite secure as compared to other companies of my domain.

Family Support - We both have a supportive family. I know in case of some big adversity, I have people to fallback on. This for sure gives a secure feeling.

How about you? How much EF do you keep? What factors determine your EF amount?

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