When the world was overwhelmed with the Covid-19 Pandemic last year, worrying about getting infected with the deadly virus, we all decided collectively to stay in our homes, packed up. And have no association with our former daily lives. Yet, the Virus managed to impact us in more ways than just physical. Many of us lost our jobs, lost our businesses. And with that, lost a stable income to survive the rough days.

Not just the virus, an emergency can punch us anytime. You may lose your job, get into an accident or get a critical illness. The outcome is always that Any emergency comes with the burden of heavy financial costs.

I saw a number of my friends and family going empty on their savings even after following a well-strategized expenditure plan. Such an emergency takes a stingy hold of our life savings. The truth is that unplanned and unexpected circumstances like deaths, illnesses, accidents, etc. are a part of life and to deal with it requires a strong mental will, along with an emergency fund to fall back on.

So what is an emergency fund?

Let me clarify it from the start. Your Savings are not your Emergency Fund. Emergency Funds are a corpus that you need to use strictly in time of emergencies. So when an emergency strikes, you don’t have to break into your savings or convert your other assets to liquid that will deviate you from your long-term financial goals. So, if another pandemic strikes again, you will have your emergency fund to fall back on and not on the money you have been saving to purchase your dream house.

And so, I devised a 4 step plan to build an emergency fund for desperate times.

Step 1- Calculate your expenses.

You must first reflect and compare your income (salary, interest payments, bonus, etc.) with your expenses like rent, utilities, food, fees, insurance, loan repayment(s), transportation, and personal expenses. to keep an account of how much you can save from your monthly income. Once you start putting extra income aside for the future, your emergency fund has started building.

Step 2- Prepare an emergency goal.

Different emergencies require different funding needs. Keep a diary of an estimated sum you must have with you in times of any emergency keeping in mind that during an emergency, you can cover all the necessary, monthly expenses until you can finally get back on your feet.

You should also remember to keep a check on your cash flows and save money for necessities.

Calculate how much money you will need for each month and set a money goal to save. I encourage you to save for at least 6 months of expenditure for your emergencies.

Step 3- Create a savings budget.

Now, compare your needs and surplus income from the first two steps, start putting money aside every month to put in your emergency funds. Cut from your leisure spendings until you reach your estimated goal of emergency funds. Suppose, if the Virus had to hit again and you have to stay home again for 6 months. You should have 6 months of emergency fund ready with you in case your income fluidity stops.

Step 4- Invest and Reflect.

Invest in liquid funds. So you can save your surplus income for your emergency fund if perhaps your monthly income cannot be converted into savings. And always ponder on your daily requirements and expenses so you can keep in check your financial needs according to your well-preserved emergency funds.

Things to keep in mind about your Emergency Funds.

Your emergency funds are not to be used for anything else but emergencies. Consider it as the least liquid income you have.

Don’t consider your saving account as an emergency fund.

Keep your savings and emergency fund apart. Because upcoming emergencies cannot be taken lightly. And once you use your emergency fund just as �?extra cash’, you risk losing all your saving once again when emergencies hits.

At times it will be tempting to spend the money you have set aside for an emergency. But, remember that your emergency fund isn’t liquid money and you should utilize these funds only when necessary. In the end, your life and living are the most important and in desperate times, having an emergency fund is the only way to get through.