Need for an emergency fund
Recently I had to think a lot about this topic. Whenever we plan our financials, we have to make sure that we have enough funds set aside as emergency funds. I was looking for some considerations to keep in mind if I quit my job. One of the biggest considerations was to try and understand if I had enough money as an emergency fund. This is very important because anything can happen in the future. Not only for us but also for our family members. In that case, the medical insurance can cover only to some extent. We have to think about having other emergency funds so that our other financial needs are met.
In financial planning need for an emergency fund is always a mandatory thing. Whatever investment we do or any new opportunity we explore or even the expenses we do, it should always be after saving up enough money for an emergency fund.
Backup for running for a few months
Once a wise person used to tell me that the emergency fund should be in such a way that we keep accumulating money in such a way that if we lose our job someday, we have to do a calculation as to how many months we can continue with the savings. The money we accumulate shouldn't just be backup money that we won't be touching at all. What if there is a situation where we have to make use of the money we keep as backup? In spite of using that money, we have to check and see how many months we can make use of that money.
My friend started thinking about his retirement based on this. He was continuously accumulating money in his bank. With the money accumulated so far, he was considering how many months or years he can survive with the money accumulated. If the number is years is huge and the money is sufficient enough, then it is a good time for retirement. I asked him if his kids would need his financial support and for that, his answer was that after a certain age, the kids should find their own income source.
Emergency medical funds
It is also important to keep some funds as emergency medical funds. The other emergency funds can also be in the bank or locked in a fixed deposit. But the medical funds should usually be easily accessible. The reason is that when there is a medical need, we should be able to withdraw those funds easily and make use of them.
In countries like India, the citizens are not covered by any basic medical plans. Many people get insurance for themselves and they pay premiums for the same. Some people are covered with medical insurance sponsored by the company. If there is a situation where we quit a job and live with passive income or another source of income, we have to make sure that we get enough income that also covers medical coverage. If for example our current CTC is 30 thousand dollars per month and the medical coverage is around 5 thousand dollars, we have to make sure that our new job or the new earning opportunity is giving us close to 40 thousand dollars would include both the regular income as well as the extra medical benefits that we would have got.
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The best advice I've ever heard is make sure you have 3 months of liquid income incase something happens. Preferably cash or tangible assets. Digital assets can be almost inaccessible if the world collapses.
I also followed you... didn't realize I wasn't.
I also save money for my immediate needs, but sometime I have to spend the money. I think I need to have a job with a higher income to avoid this.
Good advice. Though, i keep only a small part of mine liquid. I get liquidity from a credit card, so use lo risk near cash equivalents like term deposits or government bonds. These generally don't stay ahead of inflation, but better than nothing.
I agree with you and I've been building a backup fund for about 1 year. I've already reached my goal on that even if I even bought some real estate taping into it, but now I'm back to required levels and I can think of using my other money for investment and quality of life. I can easily sleep at night having some money put aside if something doesn't work at my job, while I am building things aside for a free financial future.
This is the current predicament that I have, if I will be resigning at work the healthcare plan that is catered to our needs will be a huge strain on the budget. ( premed plans are pricey if you age plus insurances too :( )
I agree that an emergency fund + medical funding is needed some say it should be at the very least six months some say at least a year. It really depends on the gravity of the situation in life but in the end having one is a must for everyone.
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I had Emergency funds for the same reason, but due to no job, my funds are getting shirnkied and I'm on the verge of bankruptcy. Worry full month for me so far.
https://twitter.com/lee19389/status/1663143195029504001
#hive #posh
At that time, I had kept some money, but due to the high price, it has also been spent and due to the market conditions, we cannot take anything out and sell it now. And neither are the conditions in Pakistan that one can get a good job, that's why one lives by working on it. And the bull market is being awaited.