Quoted (Outlook Money) – Why Emergency Fund is a Must? And where to park it?

I was recently quoted in Outlook India Money in an article about Importance of Having Emergency Fund and Where to park the emergency fund?

Here is the quote from the article (link):

Dev Ashish, a Sebi-registered investment advisor and founder of Stable Investor, a financial planning company, said, “The basic thumb rule is to keep at least 6 months’ worth of essential living expenses set aside as an emergency fund.”

Ashish suggested to people that supposing their annual expenses are Rs 10 lakh, but the core basic expenses are of Rs 8 lakh, then they should set aside at least Rs 4 lakh (50 per cent of basic annual expenses) in the emergency fund. Basic expenses will include rent, food, utilities, school fee, transportation or fuel, regular healthcare, monthly EMIs, others.

“While the thumb rule of the 6-month formula is a generalisation, different people in different circumstances will need emergency funds of different sizes. A sole earning member of the family of 5-6 dependents and who is working in a high job risk sector will need a bigger emergency fund of say 12-15 months than say for a working couple with only one child. So different people will need to set up different-sized emergency funds,” Ashish further added.

“It is worth noting that emergency funds are not about return maximisation. They are about safety and having sufficient liquidity. You don’t need to put money in volatile instruments. It’s good to give a tiered structure to your emergency fund. Also please don’t think that your credit card can act as an emergency fund. A credit card no doubt provides quick access to liquidity, but after a month, the bill will become due and you will need money to clear the credit card bills,” Ashish further added. 

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